Bitwise CIO: U.S. Regulatory Clarity Could Expose Crypto to $20T Financial Advisory Industry

TLDR

• Regulatory uncertainty has been the main reason why financial advisors haven’t increased exposure to crypto over the last five years.
• Recent political developments in Washington, such as the House passing the FIT21 Act and the SEC approving spot Ether ETFs, suggest that the U.S. is moving towards regulatory clarity for crypto.
• If regulatory uncertainties are resolved, the crypto space could be exposed to the $20 trillion financial advisory industry in the U.S.
• The market is currently undervaluing the significance of these policy shifts, presenting an opportunity for investors to capture “alpha” in the crypto market.
• While no policies have actually changed in Washington yet, the tide has turned in favor of crypto, and the market may move towards all-time highs once it fully appreciates the implications of these shifts.

The cryptocurrency market may be on the cusp of a significant breakthrough as the United States moves closer to providing regulatory clarity for digital assets.

According to Matt Hougan, chief investment officer at Bitwise, a leading crypto asset manager, the resolution of legal uncertainties could expose the crypto space to the country’s $20 trillion financial advisory industry.

For the past five years, regulatory uncertainty has been the primary factor preventing financial advisors from increasing their exposure to cryptocurrencies.

A recent survey by Bitwise revealed that 64% of advisors cited this reason as their top challenge in accessing the asset class. However, recent political developments in Washington suggest that the winds are changing in favor of crypto.

Last month, the House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21) with bipartisan support, including votes from 71 Democrats.

This bill aims to provide comprehensive regulatory clarity for crypto assets and companies. Additionally, both the House and Senate passed a resolution to strike down SEC guidance that prevented regulated banks from offering crypto custody services, although President Joe Biden later vetoed the bill.

The SEC approved spot Ether exchange-traded funds (ETFs) on May 23, after months of speculation that they would be rejected. These developments, according to Hougan, indicate that the U.S. is finally moving towards a clearer regulatory framework for cryptocurrencies.

The potential impact of these policy shifts on the crypto market cannot be overstated.

If the regulatory barriers are lifted, the crypto space could gain access to the vast wealth managed by U.S. financial advisors, estimated at around $20 trillion. As Hougan puts it,

“Imagine, then, how much of that $20 trillion will go into crypto when the biggest barrier gets lifted.”

Despite the significance of these developments, the market seems to be undervaluing their potential impact. Hougan notes that investors outside of the crypto bubble appear uninterested in these news, as the concrete benefits of such regulatory changes are “too far removed.”

He observes that when discussing these political developments at conferences, “people’s eyes glaze over.”

This lack of interest, however, presents an opportunity for savvy investors to capture “alpha” in the crypto market. If the market were to fully appreciate the implications of the shift in Washington, Hougan believes that crypto prices would already be at new all-time highs.

It is important to note that while the tide has turned in favor of crypto, no policies have actually changed in Washington yet. The repeal of SAB 121 was vetoed, FIT21 is unlikely to pass the Senate before the November elections, and the approved spot Ether ETFs have yet to launch.

As Hougan puts it,

“The tide has changed, but the water hasn’t come in yet. Wake me up when the action happens.”

The shifting political landscape in the U.S. has the potential to usher in a new era for cryptocurrencies. If regulatory clarity is achieved and the financial advisory industry embraces digital assets, the market could experience a significant surge in demand and liquidity.

As mainstream acceptance grows, the crypto market may indeed rapidlyy move towards new all-time highs.

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