Bitwise CIO: Washington's shift is a once-in-a-lifetime alpha for crypto
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Bitwise CIO: Washington's shift is a once-in-a-lifetime alpha for crypto
If people understood the impact of Washington's shift in attitude, the cryptocurrency market would reach new all-time highs.
Navigating Web3 tides with focused insightsAuthor: Matt Hougan, Chief Investment Officer at Bitwise
Translation: Luffy, Foresight News
Alpha, as defined by Investopedia, is "the ability of an investment strategy to outperform the market." Alpha is rare because markets are highly competitive. To unlock alpha, you need to know something the market doesn’t.
That’s hard. Hedge funds, institutions, and high-frequency trading firms—with their deep expertise and billions in investments—are all competitors standing in your way. Good luck!
This is why index investing is so popular—and why most active fund managers fail to beat the market. According to S&P data, nearly 90% of active fund managers have underperformed the market over the past decade.
I’m a true believer in index investing. I help manage the world’s largest cryptocurrency index fund and wrote the foreword to Eric Balchunas’ book *The Bogle Effect*, which explores Jack Bogle, founder of Vanguard and widely regarded as the “father of index investing.”
But every once in a while, I spot alpha in the market—and few things are more exciting. Right now, we’re in one of those electrifying moments.
A gunshot unlike any other in the world
As readers may know, Washington’s stance on crypto has shifted dramatically over the past month.
For years, crypto has been politically polarized. Republicans generally supported it, while much of the Democratic party remained hostile.
One piece of evidence for Democratic hostility was Senator Elizabeth Warren’s March 2023 announcement of her plan to “build an anti-crypto coalition.”
But in recent years, crypto has built significant political influence, including establishing one of Washington’s top ten political action committees.
These efforts are paying off. The shift began on May 8, when 21 House Democrats joined Republicans in voting to repeal SAB 121—a ridiculous rule imposed by the SEC that prevented major banks from custodizing crypto assets. Days later, 10 Senate Democrats—including Senate Majority Leader Chuck Schumer—joined Republicans in voting to overturn the rule. This marked the first pro-crypto legislative action in U.S. history.
Then, on May 20, shockingly, 71 Democrats joined 208 Republicans in supporting FIT21, a comprehensive crypto bill that would grant primary oversight of crypto to the crypto-friendly Commodity Futures Trading Commission (CFTC).
Even more critical, the Securities and Exchange Commission (SEC), led by Democrat-appointed Gary Gensler, approved spot Ethereum ETF applications—an outcome few expected.
To be clear: from a political standpoint, crypto still has a long way to go. On Friday, President Biden vetoed the bill to repeal SAB 121.
But even so, this is just a minor setback. For a decade, tailwinds have carried us forward in crypto. Now, finally, the winds are beginning to shift.
Why this is alpha
I believe this is alpha precisely because, beyond crypto bubbles, people don’t care about anything else.
Over the past few weeks, I’ve been traveling to various conferences, and despite my best efforts, this story simply fails to resonate. I talk about the votes, Warren’s anti-crypto coalition, the unexpected progress on Ethereum ETFs—but people stare blankly.
The story is too complex and its impact feels too distant. After all, Washington policy hasn’t truly changed yet. The repeal of SAB 121 was vetoed; FIT21 is unlikely to pass the Senate before the election; and spot Ethereum ETFs haven’t actually launched.
Although the direction of the tide is clear, rising waters take time. If people fully grasped the implications of Washington’s shift, the crypto market would surge to new all-time highs.
Let me give an example.
Financial advisors in the U.S. manage approximately $20 trillion in assets. For the past six years, we’ve annually asked these advisors what’s holding them back from allocating more to crypto in client portfolios. For five consecutive years, the answer has been consistent: regulatory uncertainty. In our most recent survey, this remains the top concern for 64% of advisors.
Now imagine how much of that $20 trillion could flow into crypto once this biggest barrier is removed.
Consider Wall Street. In recent years, some of the largest banks either abandoned crypto or entered cautiously for the same reason. For instance, Bank of New York, Nasdaq, and State Street all announced plans over the past two years to launch crypto custody services—only to halt those initiatives due to regulatory uncertainty.
If you thought BlackRock’s entry into crypto had a positive market impact, just imagine the unstoppable wave that would follow if the entire Wall Street embraced crypto as an essential asset class.
The market will realize we’re entering a new era for crypto—one that propels the entire industry forward on a powerful wave toward new all-time highs.
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