The market is underestimating the significance of Washington’s evolving attitude toward cryptocurrencies, according to Bitwise CIO Matt Hougan. In a memo dated June 4, he highlighted how the US political landscape has shifted significantly towards a more positive stance on crypto in recent weeks. Hougan believes that if the impact of these changes had been priced in, the market would have already reached a new all-time high. The shifting tides in Washington could potentially unlock substantial “alpha,” indicating an investment strategy’s ability to outperform the market.
Historical Partisan Divide on Crypto
Historically, crypto has been a partisan issue, with Republicans generally supporting it and Democrats showing resistance. Senator Elizabeth Warren’s announcement to “build an anti-crypto army” in March exemplifies the Democratic opposition to cryptocurrencies. However, crypto advocates have strategically built political influence over time, leading to significant legislative actions. For example, on May 8, 21 House Democrats voted alongside Republicans to repeal SAB 121, a controversial SEC rule restricting large banks from holding crypto. The Senate also followed suit, with 10 Democrats, including Senate Majority Leader Chuck Schumer, supporting the repeal. This marked the first positive legislative action on crypto in US history.
On May 20, 71 Democrats and 208 Republicans in the House passed FIT21, a comprehensive crypto bill assigning primary oversight to the crypto-friendly Commodity Futures Trading Commission (CFTC). Additionally, the SEC, led by Democrat-appointed chair Gary Gensler, approved filings to list spot Ethereum ETFs, surprising many in the industry. Despite these advancements, crypto still faces ongoing political 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, stating, “Crypto still has a long way to go, politically speaking. But the winds have started to change.”
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 showed that 64% of US financial advisors consider regulatory uncertainty as the main barrier to greater crypto exposure in their portfolios. Once this barrier is removed, a significant portion of the estimated $20 trillion managed by these advisors could flow into crypto investments. The potential impact on Wall Street is equally substantial, as major financial institutions have hesitated to fully embrace crypto due to regulatory concerns. Hougan suggests that if Wall Street were to accept crypto as a mainstream asset, the market could see new heights.
While the broader market may currently be indifferent to these changes, Hougan believes that this presents an opportunity for savvy investors. He stated, “The market will wake up to the fact that we are in a new era for crypto.” As political attitudes continue to evolve and regulatory hurdles are addressed, the potential for significant growth and investment opportunities in the crypto market becomes more apparent. Investors who are willing to navigate this changing landscape may find themselves at an advantage in the emerging crypto economy.
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