Markets
Bitwise CIO Says Market Undervalues Washington’s Change in Attitude Toward Crypto
Bitwise CIO Matt Hougan believes the market is underestimating the significance of Washington’s changing attitude towards cryptocurrencies.
Hougan said in a June 4 note that the U.S. policy landscape regarding crypto had significantly shifted toward a more positive position in recent weeks, and that the market would have already reached a new all-time high if its impact had been taken into account.
He added that trend changes in Washington could unlock substantial “alpha,” a term used to describe an investment strategy’s ability to outperform the market.
Changing tides
Historically, crypto has been a partisan issue, with Republicans generally supporting it and Democrats showing resistance. Hougan cited Sen. Elizabeth Warren (D-MA) who announced plans to “build an anti-crypto army” last March as an example of Democratic opposition.
However, crypto proponents have strategically increased their political influence, resulting in significant legislative actions.
On May 8, 21 Democratic deputies voted alongside Republicans for repeal SAB 121, a controversial SEC rule that prohibits major banks from holding cryptocurrencies. The Senate followed suit, with 10 Democrats, including Senate Majority Leader Chuck Schumer, joining the Republican Party in supporting repeal.
This is the first positive legislative action on crypto in U.S. history.
New momentum came on May 20, when 71 Democrats joined 208 Republicans in the House to pass FIT21, a full crypto invoice this would hand primary oversight to the crypto-friendly Commodity Futures Trading Commission (CFTC).
Additionally, the SEC, led by Democratic-appointed Chairman Gary Gensler, approved listing filings for Ethereum spot ETFs, a move few expected.
Despite this progress, crypto faces persistent policy challenges. President Joe Biden recently vetoed the repeal of SAB 121, highlighting the complex regulatory environment. However, Hougan sees these developments as a turning point.
He said:
“Crypto still has a long way to go, politically speaking. But the winds began to change.
End of regulatory uncertainty
Hougan believes that the broader market has yet to recognize the implications of these policy changes. He said regulatory uncertainty has long been a major concern for financial advisors and Wall Street institutions.
A recent Bitwise survey found that 64% of U.S. financial advisors cite regulatory uncertainty as the biggest barrier to gaining greater exposure to cryptocurrencies in their portfolios. Hougan says that once this hurdle is removed, a significant portion of the estimated $20 trillion managed by these advisors could be invested in crypto.
The potential impact on Wall Street is just as significant. Large financial institutions have been hesitant to fully embrace crypto due to regulatory concerns. Hougan suggests that if Wall Street accepted crypto as a primary asset, the market could reach new highs.
Although the market as a whole remains largely indifferent to these changes, Hougan believes this represents an opportunity for savvy investors. He said:
“The market will realize that we are in a new era for crypto. In the meantime, there may just be a bit of alpha hanging around.