Newcastle United were keen on the 25-year-old and they were close to tying up a loan deal for the centre-back.
Arteta, however, blocked the move and he has explained now that was done because he knew Holding would become a key player for him. The defender has indeed flourished this season and he has become a regular for the Gunners.
“It was almost a year ago when he came back from his injury,” said Arteta.
“He had a period when he did not play and then he played against Leeds at home. When you compare how he has evolved from there to now, in a year’s time, it is incredible.
“It is down to him, how professional he is, how much he wants to learn, how much he puts into every training session and then his character and his personality.
“He is growing in every aspect. I am really happy with him. It is true that in the summer he came to me because we had a large amount of central defenders and he was not sure about how many minutes he was going to have.
“We stopped him going anywhere because we knew he was going to be an important player for us.”
Holding’s rise led to him captaining the side last month and Arteta believes he is more of leader than people realise.
“It is what I see on a daily basis with him, and the room that he still has for improvement, his age,” he said.
“I really like what I see. He has earned that right himself. It is true there have been many other conditions for him to play that many minutes because we have injuries, we have other issues, but he has earned that right.
“Nobody can question that when he has played, he has performed really well.”