The Chief Investment Officer at Bitwise, Matt Hougan, has pointed out that the market is failing to properly assess the significant changes in Washington’s stance on cryptocurrencies. In a memo issued on June 4th, Hougan explained that there has been a noticeable shift towards a more positive outlook on cryptocurrencies within the US political landscape. He stated that if the market had fully priced in the impact of these developments, cryptocurrencies would have already reached a new all-time high. This change in Washington’s perspective could potentially unlock substantial “alpha,” indicating an investment strategy‘s ability to outperform the market.
Traditionally, the issue of cryptocurrencies has been a partisan one, with Republicans generally showing support and Democrats displaying resistance towards it. For instance, Senator Elizabeth Warren (D-MA) made headlines last March by announcing plans to “build an anti-crypto army,” showcasing opposition from the Democratic side. Despite this, crypto advocates have been strategically increasing their political influence, resulting in significant legislative actions. On May 8th, 21 House Democrats voted alongside Republicans to repeal SAB 121, a controversial SEC rule that limits large banks from holding cryptocurrencies. This was followed by the Senate also supporting the repeal, with notable Democrats such as Senate Majority Leader Chuck Schumer backing the move. This marked a positive legislative action towards cryptocurrencies in US history.
Subsequent momentum was seen on May 20th when a significant number of Democrats and Republicans in the House passed FIT21, a comprehensive crypto bill that entrusts primary oversight to the crypto-friendly Commodity Futures Trading Commission (CFTC). Moreover, the SEC, led by Democrat-appointed chair Gary Gensler, surprised many by approving filings for spot Ethereum ETFs, a move that was not widely anticipated. Despite these advances, cryptocurrencies still encounter ongoing political challenges, such as President Joe Biden vetoing the repeal of SAB 121. This showcases the complex regulatory environment surrounding cryptocurrencies. However, Hougan views these developments as a turning point, stating that while there is still a long road ahead for crypto politically, the winds of change have begun to blow in a favorable direction.
Hougan believes that the broader market has yet to fully grasp the implications of these political shifts. Regulatory uncertainty has long been a primary concern for financial advisors and Wall Street institutions. A recent Bitwise survey revealed that 64% of US financial advisors point to regulatory uncertainty as the main obstacle to increasing crypto exposure in their portfolios. Once this barrier is removed, a significant portion of the estimated $20 trillion managed by these advisors could potentially flow into cryptocurrencies. Similarly, major financial institutions have been hesitant to embrace crypto fully due to regulatory apprehensions. Hougan suggests that if Wall Street were to embrace cryptocurrencies as mainstream assets, it could propel the market to new heights.
While the broader market may seem indifferent to these political changes, Hougan sees this as an opportunity for astute investors. He emphasizes that the market will eventually acknowledge that we are entering a new era for cryptocurrencies, and those who recognize this shift early on stand to benefit.