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Bitwise CIO says the market is underestimating Washington’s changing attitude towards cryptocurrencies
Bit by bit CIO Matt Hougan believes the market is underestimating the importance of Washington’s evolving attitude towards cryptocurrencies
Hougan said in a June 4 note that the U.S. political landscape surrounding cryptocurrencies has changed significantly toward a more positive attitude in recent weeks, and that the market would have already reached a new all-time high if its impact had been discounted.
He added that the changing tides in Washington could unlock substantial “alpha,” a term used to describe an investment strategy’s ability to outperform the market.
Changing tides
Historically, cryptocurrencies have been a partisan issue, with Republicans generally supporting them and Democrats showing resistance. Hougan cited Senator Elizabeth Warren’s (D-MA) famous announcement of plans to “build an anti-crypto army” last March as an example of Democratic opposition.
However, cryptocurrency advocates have strategically built their political influence, culminating in significant legislative actions.
On May 8, 21 House Democrats voted alongside Republicans repeal SAB 121, a controversial SEC rule that prevents large banks from holding cryptocurrencies. The Senate followed suit, with 10 Democrats, including Senate Majority Leader Chuck Schumer, joining the GOP in support of repeal.
This marked the first positive legislative action on cryptocurrencies in US history.
Further momentum came on May 20, when 71 Democrats joined 208 House Republicans to pass FIT21, a program full crypto invoice this would assign primary oversight to the cryptocurrency-friendly Commodity Futures Trading Commission (CFTC).
Additionally, the SEC, led by Democratic nominee Chairman Gary Gensler, approved the application to list spot ETFs on Ethereum, a move that few had predicted.
Despite this progress, cryptocurrencies face ongoing political challenges. President Joe Biden recently vetoed the repeal of BRS 121, highlighting the complex regulatory context. However, Hougan sees these developments as a turning point.
He said:
“Cryptocurrencies still have a long way to go, politically speaking. But the wind started to change.”
End of regulatory uncertainty
Hougan believes 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 revealed that 64% of U.S. financial advisors cite regulatory uncertainty as the primary barrier to increased cryptocurrency exposure in their portfolios. Hougan argues that once this barrier is removed, a significant portion of the estimated $20 trillion managed by these advisors could flow into cryptocurrencies.
The potential impact on Wall Street is equally substantial. Major financial institutions have been hesitant to fully embrace cryptocurrencies due to regulatory concerns. Hougan suggests that if Wall Street accepts cryptocurrencies as mainstream assets, the market could reach new heights.
While the market as a whole remains largely unaffected by these changes, Hougan believes this presents an opportunity for savvy investors. He said:
“The market will realize that we are in a new era for cryptocurrencies. Until that happens, there may just be so much alpha around.”