Bitwise Chief Investment Officer: The Three Major Opportunities I See from the SEC's "Encryption Plan"

Written by: Matt Hougan, Chief Investment Officer of Bitwise

Compiled by: Luffy, Foresight News

Last week, SEC Chairman Paul Atkins delivered a speech titled "America's Leadership in the Digital Financial Revolution" at the American Priority Policy Institute.

You should read it now. Really, don't hesitate, this speech is a blueprint for investments over the next five years.

In the speech, Atkins outlined the vision for the future financial market. To give a spoiler, everything will revolve around public chains like Ethereum. He proposed:

All assets (stocks, bonds, dollars, etc.) will ultimately migrate to the public chain.

Decentralized finance (DeFi) will play an important role in the future;

Cryptographic assets and blockchain can give rise to exciting new business models;

The main factor hindering this "revolution" is the hostile regulatory environment, and now this environment has changed 180 degrees.

This is the most complete vision I have read about how cryptocurrencies are reshaping the financial markets.

After reading this speech, it's hard not to want to allocate a large amount of funds to the cryptocurrency sector. If you work in the financial industry, you may even consider shifting the focus of your career here. The SEC Chairman has distilled all the essence of the points made by cryptocurrency supporters over the past decade into this speech, and has detailed how the SEC will promote these ideas to fruition.

"This is a once-in-a-generation opportunity," he wrote in his speech. A few years ago, I wasn't even sure if the compliance department would allow me to say something like this.

What does it mean for investors

For investors, this speech has too many valuable insights to explore. You could start a venture capital firm around Atkins' vision and create corresponding businesses for each opportunity he presents. However, in my view, there are three investment opportunities that stand out.

Opportunity 1: Ethereum (and other Layer 1 public chains)

The most obvious opportunity is to invest in Ethereum and other Layer 1 public chains that support stablecoins and asset tokenization.

"Today, I announce the launch of 'Project Crypto,'" Atkins said, "This is a committee-wide initiative aimed at updating securities regulations to allow the U.S. financial markets to migrate on-chain."

It is not difficult to see: if almost all assets migrate to the public chain, you will inevitably want to layout these public chains.

Which public chains are worth paying attention to? The best strategy may be to buy a basket of mainstream assets: Ethereum, Solana, Cardano, XRP, Avalanche, Aptos, Sui, NEAR, and so on.

I know some readers will say: Ethereum is obviously the dominant chain in the tokenization and stablecoin space. I agree! It is in a leading position. But looking back at the rise of digital trading in the early 21st century — which was the last major upgrade of the financial system — the early market leaders were companies like Island ECN and Instinet.

Have you heard these names recently? I haven't either. But Nasdaq's stock price has increased by 2275% since its listing in July 2002.

Instead of trying to pick individual assets, it is better to adopt an indexing strategy by buying a basket of assets to cover future leading projects.

Opportunity 2: "Super Apps" like Coinbase, Robinhood

The most instructive part of the speech is the section titled "Driving Super Apps: Horizontal Integration of Product Services." In it, Atkins depicted a future where a single application can provide customers with comprehensive financial services.

Atkins stated: "Broker-dealers with alternative trading systems should be able to simultaneously offer trading in non-securities crypto assets, crypto asset securities, traditional securities, as well as services such as crypto asset staking and lending, without needing to obtain licenses from over 50 states or multiple federal licenses."

Reading this part, it's hard not to think of Coinbase and Robinhood, both of which are practicing the concept of super applications, just starting from different points: Coinbase started in the crypto space and is expanding towards traditional assets; while Robinhood began with traditional assets and is rapidly moving towards the crypto space.

I boldly predict: one of these companies may become the largest financial services company in the world and may even become the first financial services company with a market value exceeding $1 trillion. Atkins has just charted a roadmap for them.

Opportunity Three: DeFi Applications

The third prominent opportunity in Atkins' speech is decentralized finance (DeFi).

DeFi applications have always been in a regulatory gray area, neither explicitly allowed nor clearly prohibited by existing regulations. This has limited their development: while DeFi applications are widely used by crypto enthusiasts, mainstream investors and institutions have almost never ventured into them.

In the section titled "Unlocking the Potential of the U.S. Market: A Vast and Comprehensive On-Chain Software System," Atkins explains why regulators find it difficult to understand DeFi:

"Decentralized finance software systems (such as automated market makers) facilitate automated, non-intermediated financial market activities. Federal securities laws have always assumed the existence of intermediaries that need regulation, but this does not mean that in a market where operations can run without intermediaries, we should still forcibly introduce them."

In other words: DeFi is not only a technological revolution but also a conceptual revolution. And the SEC chairman understands this.

Despite the lack of regulatory clarity, the usage of DeFi applications has been quite substantial. The largest spot trading application, Uniswap, reached a trading volume of $88 billion in June, setting a new historical record; the locked-in value of DeFi lending protocols like Aave also hit a record high of $56 billion; derivative platforms like Hyperliquid are similarly large.

If regulation becomes clearer, could these numbers grow by 10 times? 50 times? Or even 100 times? As the traditional market merges with the crypto market, opportunities in the DeFi space will be extremely vast.

Critics point out that most DeFi tokens lack a clear economic connection to the underlying protocols. For example, Uniswap's UNI token is a "governance token": this means that holders can vote on the direction of the protocol's development, but cannot benefit from the transaction fees collected by the platform.

I suspect that this is a legacy issue from the previously adversarial regulatory environment. Under the SEC's new vision, assets like UNI may establish a more direct economic connection with the underlying protocols, unlocking enormous value.

Core question: Has it already been priced in?

The most obvious question regarding Atkins' vision is: has this been reflected in the price? If the market has already anticipated that the SEC will shift from being an opponent of cryptocurrency to a "catalyst," then the prices of assets like Ethereum, Solana, and Uniswap should have already reflected this.

Maybe. But what I want to say in the end is: this speech caught me off guard.

For the past eight years, I have been researching and writing about cryptocurrency, and I have a long-term optimistic view of the future of cryptocurrencies. I have also said that all assets will eventually migrate to the blockchain. However, after reading this speech, I realized that my perspective is still not broad enough, and I need to accelerate my pace of action.

If I didn't anticipate it, I think others didn't either.