The Investing Game Has Changed! 
Bitwise CIO Matt Hougan believes the market is underestimating the significance of Washington’s evolving attitude toward cryptocurrencies
Hougan said in a June 4 memo that the US political landscape regarding crypto has changed significantly toward a more positive stance in recent weeks, and the market would been at a new all-time high already if its impact had been priced in.
He added that the shifting tides in Washington could unlock substantial “alpha,” a term used to describe an investment strategy’s ability to outperform the market.
Shifting tides
Historically, crypto has been a partisan issue, with Republicans generally supporting it and Democrats showing resistance. Hougan cited Senator Elizabeth Warren (D-MA) famously announcing plans to “build an anti-crypto army” last March as an example of the Democratic opposition.
However, crypto advocates have been strategically building political influence, culminating in significant legislative actions.
On May 8, 21 House Democrats voted alongside Republicans to repeal SAB 121, a controversial SEC rule that restricts large banks from holding crypto. The Senate followed suit, with 10 Democrats, including Senate Majority Leader Chuck Schumer, joining the GOP in support of the repeal.
This marked the first positive legislative action on crypto in US history.
Further momentum came on May 20, when 71 Democrats joined 208 Republicans in the House to pass FIT21, a comprehensive crypto bill that would assign 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, a move few anticipated.
Despite these advancements, crypto 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.
He said:
“Crypto still has a long way to go, politically speaking. But the winds have started to change.”
End of regulatory uncertainty
Hougan believes the broader market has yet to recognize the implications of these political shifts. He said that 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 cite regulatory uncertainty as the main barrier to greater crypto exposure in their portfolios. Hougan argues that once this barrier is lifted, a significant portion of the estimated $20 trillion managed by these advisors could flow into crypto.
The potential impact on Wall Street is equally substantial. 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 reach new heights.
While the broader market remains largely indifferent to these changes, Hougan believes this presents an opportunity for savvy investors. He said:
“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 laying around.”
