Bit by bit CIO Matt Hougan believes the market is underestimating the importance of Washington's changing attitude toward cryptocurrencies.
Hougan said in a June 4 memo that the U.S. political landscape regarding cryptocurrencies has shifted significantly toward a more positive stance in recent weeks, and that the market would already be at 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
Cryptocurrencies have historically been a partisan issue, with Republicans generally supporting them and Democrats showing resistance. Hougan cited Senator Elizabeth Warren (D-MA), who announced plans to “build an anti-cryptocurrency army” last March as an example of Democratic opposition.
However, cryptocurrency advocates have been strategically building political influence, culminating in major legislative actions.
On May 8, 21 House Democrats voted with Republicans to repeal SAB 121, a controversial SEC rule that restricts large banks from holding cryptocurrencies. The Senate followed suit, and 10 Democrats, including Senate Majority Leader Chuck Schumer, joined 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 Republicans in the House to pass FIT21, a comprehensive crypto bill that would assign primary oversight to the cryptocurrency-friendly Commodity Futures Trading Commission (CFTC).
Additionally, the SEC, led by Democratic-appointed chairman Gary Gensler, approved filings to list Ethereum spot ETFs, a move few anticipated.
Despite these advances, cryptocurrencies face ongoing political challenges. President Joe Biden recently vetoed the repeal of SAB 121, highlighting the complex regulatory environment. However, Hougan sees these events as a turning point.
He said:
“Cryptocurrencies still have a long way to go, politically speaking. But the winds have begun to change.”
End of regulatory uncertainty
Hougan believes the broader market has yet to recognize the implications of these political changes. He said regulatory uncertainty has long been a top concern for financial advisors and Wall Street institutions.
A recent survey by Bitwise revealed that 64% of US financial advisors cite regulatory uncertainty as the main barrier to greater exposure to cryptocurrencies in their portfolios. Hougan maintains that once this barrier is lifted, a significant portion of the estimated $20 trillion managed by these advisors could go 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 accepted cryptocurrencies 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 realize that we are in a new era for cryptocurrencies. Until that happens, there may be some alpha out there.”
