The current Chief Investment Officer (CIO) at Bitwise, Matt Hougan, has recently pointed out that the market is not fully grasping the significance of the changing attitude of Washington towards cryptocurrencies. In a memo dated June 4, Hougan mentioned that there has been a notable shift in the US political landscape regarding crypto in recent weeks, moving towards a more positive stance. He emphasized that if the market had priced in this impact accurately, cryptocurrencies would have already reached a new all-time high. The evolving tides in Washington could potentially unlock substantial “alpha,” indicating the investment strategy’s ability to outperform the market.
Traditionally, the discussion around cryptocurrencies has been a partisan issue, with Republicans generally supporting the concept while Democrats have shown resistance. Hougan cited an example where Senator Elizabeth Warren (D-MA) openly announced plans to “build an anti-crypto army” back in March, reflecting the Democratic opposition. However, crypto advocates have strategically been increasing their political influence, leading to significant legislative actions. For instance, on May 8, 21 House Democrats voted alongside Republicans to repeal SAB 121, a controversial SEC rule restricting large banks from holding crypto. Subsequently, the Senate also supported the repeal, with 10 Democrats, including Senate Majority Leader Chuck Schumer, joining the GOP. This marked the first positive legislative action on crypto in US history.
Further progress was noted on May 20 when 71 Democrats in the House supported 208 Republicans in passing FIT21, a comprehensive crypto bill that would assign primary oversight to the crypto-friendly Commodity Futures Trading Commission (CFTC). Additionally, there was a surprising move by the SEC, led by Democrat-appointed chair Gary Gensler, as they approved filings to list spot Ethereum ETFs, catching many off guard. Despite these advancements, the crypto industry still faces ongoing political challenges, as seen when President Joe Biden vetoed the repeal of SAB 121. This highlights the complex regulatory environment that cryptocurrencies operate within.
Hougan believes that the broader market has not yet fully recognized the implications of these political shifts. Regulatory uncertainty has been a significant concern for financial advisors and institutions on Wall Street. A recent survey conducted by Bitwise revealed that 64% of US financial advisors identified regulatory uncertainty as the main barrier to increasing crypto exposure in their portfolios. If this barrier is removed, a substantial amount of the estimated $20 trillion managed by these advisors could potentially flow into the crypto market. The impact on Wall Street would be equally significant, as major financial institutions have been hesitant to fully embrace cryptocurrencies due to regulatory fears. Hougan suggests that if Wall Street were to embrace crypto as a mainstream asset, the market could reach new heights.
While the broader market seems largely indifferent to these changes, Hougan views this as an opportunity for astute investors. He believes that the market is yet to realize that we are entering a new era for cryptocurrencies, and there is considerable potential for growth and development in this sector. Despite the challenges that still exist, the shifting political landscape in Washington indicates a positive direction for cryptocurrencies and their acceptance in mainstream financial markets.
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