Regulation
Bitwise CIO: US Regulatory Clarity Could Expose Crypto to $20 Trillion Financial Advisory Industry
TLDR
- Regulatory uncertainty has been the primary reason financial advisors have not increased exposure to cryptocurrencies over the past five years.
- Recent political developments in Washington, such as the House passage of the FIT21 bill and the SEC approval of Ether spot ETFs, suggest that the United States is moving towards regulatory clarity for cryptocurrencies.
- If regulatory uncertainties are resolved, the cryptocurrency sector could be exposed to the $20 trillion financial advisory industry in the US
- The market is currently underestimating the importance of these political changes, providing investors with the opportunity to capture “alpha” in the cryptocurrency market.
- While no policies have yet changed in Washington, the tide has shifted in favor of cryptocurrencies and the market could move towards all-time highs once it fully understands the implications of these changes.
The cryptocurrency market may be on the verge of a significant breakthrough as the United States moves closer to providing regulatory clarity for digital assets.
According to Matt Hoganchief investment officer of Bitwise, a leading cryptocurrency asset manager, resolving the legal uncertainties could expose the cryptocurrency sector to the country’s $20 trillion financial advisory industry.
Over the past five years, regulatory uncertainty has been the primary factor preventing financial advisors from increasing their exposure to cryptocurrencies.
A recent survey conducted by Bitwise revealed that 64% of advisors cited this reason as the top challenge in accessing the asset class. However, recent political developments in Washington suggest that the tide is changing in favor of cryptocurrencies.
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 eliminate SEC guidelines that prevented regulated banks from offering cryptocurrency custody services, although President Joe Biden later vetoed the bill.
The SEC approved Ether spot exchange traded funds (ETFs) on May 23 after months of speculation that they would be rejected. These developments, according to Hougan, indicate that the United States is finally moving towards a clearer regulatory framework for cryptocurrencies.
The potential impact of these political changes on the cryptocurrency market cannot be overstated.
If regulatory barriers were removed, the cryptocurrency industry could gain access to the vast wealth managed by US financial advisors, estimated at around $20 trillion. As Hogan says,
“Imagine, then, how much of that $20 trillion will go into cryptocurrencies when the biggest barrier is removed.”
Despite the importance of these developments, the market appears to underestimate their potential impact. Hougan notes that investors outside the cryptocurrency bubble seem uninterested in this news, as the concrete benefits of such regulatory changes are “too distant.”
He notes that when these political developments are discussed at conferences, “people’s eyes glaze over.”
This lack of interest, however, presents an opportunity for savvy investors to capture “alpha” in the cryptocurrency market. If the market were to fully appreciate the implications of the change in Washington, Hougan believes cryptocurrency prices would already be at new all-time highs.
It is important to note that although the tide has shifted in favor of cryptocurrencies, no policy has yet changed in Washington. The repeal of BRS 121 was vetoed, FIT21 is unlikely to pass the Senate before the November elections, and approved Ether spot ETFs have yet to launch.
As Hogan says,
“The tide has turned, but the water hasn’t come in yet. Wake me up when the action happens.
The changing political landscape in the United States 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 see a significant increase in demand and liquidity.
As mainstream acceptance grows, the cryptocurrency market may indeed move rapidly to new all-time highs.