Bitwise CIO: Market Missing Washington's New Pro-Crypto Attitude

Bitwise CIO Matt Hougan believes the market is underestimating the significance of Washington’s changing attitude towards cryptocurrencies. In a June 4 memo, Hougan highlighted that recent weeks have seen a positive shift in US political views on crypto, which, if priced in, could have pushed the market to new highs.

Hougan noted that this evolving stance could unlock significant “alpha,” indicating the potential for investments to outperform the market. Historically, crypto has been a partisan issue, with Republicans generally supporting it and Democrats opposing it. Senator Elizabeth Warren’s announcement to “build an anti-crypto army” last March is a clear example of Democratic resistance.

Despite this opposition, crypto supporters have been gaining political ground. On May 8, 21 House Democrats joined Republicans to repeal SAB 121, an SEC rule limiting large banks from holding crypto. The Senate followed suit, with 10 Democrats, including Senate Majority Leader Chuck Schumer, backing the repeal. This marked the first positive legislative action on crypto in US history.

Further progress was made on May 20, when 71 Democrats and 208 Republicans in the House passed FIT21, a comprehensive crypto bill that assigns primary oversight to the Commodity Futures Trading Commission (CFTC). Additionally, the SEC, led by Democrat-appointed chair Gary Gensler, approved filings for spot Ethereum ETFs, an unexpected development.

Despite these advancements, crypto still faces hurdles. President Joe Biden recently vetoed the repeal of SAB 121, highlighting the complex regulatory landscape. Nonetheless, Hougan sees these developments as pivotal, stating, “Crypto still has a long way to go, politically speaking. But the winds have started to change.”

Hougan believes the market has not yet fully recognized these political shifts. Regulatory uncertainty has long been a major concern for financial advisors and Wall Street institutions. A recent Bitwise survey found that 64% of US financial advisors see regulatory uncertainty as the main barrier to increasing crypto exposure.

Hougan argues that once this uncertainty is lifted, a significant portion of the $20 trillion managed by advisors could flow into crypto, boosting the market.

Major financial institutions have hesitated to embrace crypto due to regulatory concerns fully. Hougan suggests that if Wall Street accepts crypto as a mainstream asset, the market could achieve significant growth. While the broader market remains largely indifferent, Hougan views this as an opportunity for informed investors. He stated, “The market will wake up to the fact that we are in a new era for crypto. Until it does, there may just be some alpha lying around.”

Bitwise CIO Matt Hougan emphasizes that the market is undervaluing Washington’s changing stance on crypto. Recent bipartisan legislative actions and regulatory approvals signal a more favorable environment for cryptocurrencies. Despite ongoing challenges, the potential for substantial market growth is evident once regulatory uncertainties are resolved. This evolving political landscape offers unique opportunities for savvy investors to capitalize on the crypto market’s untapped potential.