Bitwise CIO: The biggest alpha will be the change in Washington's attitude towards cryptocurrency

Original Title: “Washington Awakens: This Is What Alpha Looks Like”

Author: Matt Hougan, Chief Investment Officer of Bitwise

Compiled by: Chris, Techub News

Beyond the bubble of cryptocurrency, it seems that few people have noticed the ever-changing attitude of Washington towards cryptocurrency. This may mean Alpha.

Alpha is the rarest commodity in the world.

Investopedia defines Alpha as the ability of an investment strategy to outperform the market or its ‘edge’. Alpha is rare because of intense market competition. To achieve Alpha, you need to know information that the market doesn’t know.

It’s not easy. Hedge funds, institutions, and high-frequency trading firms have extensive experience and billions of dollars in resources, they are the opponents you need to surpass in the search for Alpha.

This is also why index investing is so popular, as most active fund managers find it difficult to outperform the market. According to Standard & Poor’s data, nearly 90% of active fund managers have underperformed the market over the past 10 years.

I am a staunch supporter of index investing. I help manage the world’s largest cryptocurrency index fund and have written the foreword for Eric Balchunas’ book, “The Bogle Effect.” The book tells the story of Jack Bogle, the founder of Vanguard Group, who is widely recognized as the “father of index investing”.

But sometimes, I also find Alpha in the market, and nothing is more exciting than that. Now, it’s such an exciting moment.

Gunshots unheard anywhere in the world

As readers may know, there has been a significant change in Washington’s attitude towards cryptocurrency in the past month.

In the past few years, the issue of cryptocurrency has become politically complex due to partisan divisions. The Republican Party generally supports cryptocurrency, while the Democratic Party is mostly opposed.

An obvious example is the plan announced by Senator Elizabeth Warren in March last year to establish an ‘Anti-Cryptocurrency Alliance’, which shows the Democratic Party’s hostility towards cryptocurrencies.

However, in recent years, the political influence of cryptocurrency has been growing, including the establishment of one of the top ten political action committees in Washington. These efforts are beginning to pay off. The shift began on May 8, when 21 Democrats in the House of Representatives voted to repeal SAB 121, a ridiculous rule set by the SEC that effectively prevented large banks from custodizing crypto assets. A few days later, 10 Senate Democrats (including Senate Majority Leader Chuck Schumer) joined the Republicans in voting to repeal the bill. This is the first positive legislative action on cryptocurrency in American history.

Then, on May 20, 71 Democrats and 208 Republicans voted together to support FIT21, comprehensive cryptocurrency legislation that grants the Commodity Futures Trading Commission (CFTC) primary regulatory authority over cryptocurrencies.

To the surprise of many, Gary Gensler, the chairman of the US Securities and Exchange Commission (SEC) appointed by the Democratic Party, has approved the listing application for the Ethereum spot ETF.

It should be clear that from a political perspective, cryptocurrency still has a long way to go. On Friday, President Biden vetoed the repeal of SAB 121, ignoring the growing majority of both houses of Congress.

Even so, this is just a minor setback. In the past decade, we have been sailing against the wind in the cryptocurrency field, and now the wind is starting to change.

Why is this Alpha?

I think the reason for this is Alpha, because people are indifferent to other things besides the cryptocurrency bubble.

In the past few weeks, I have been rushing around various meetings, and despite my best efforts, this story has been difficult to resonate. I talked about the voting results, Warren’s anti-cryptocurrency alliance, and the unexpected progress of the Ethereum ETF, but people remained indifferent.

The story is too complicated and the impact is too far-reaching. After all, Washington’s policies have not really changed. The repeal of SAB 121 was rejected; the possibility of FIT21 passing the Senate before the election is slim; and the Ethereum ETF has not been officially launched yet.

Although the direction of the trend has already emerged, the rising tide still takes time. If people understand the impact of Washington’s transformation, the cryptocurrency market will reach a historic high.

Let me give you an example.

The financial advisors in the United States manage approximately $20 trillion in wealth. Over the past six years, we have asked these advisors every year what has hindered them from allocating more cryptocurrencies in their investment portfolios. For five consecutive years, the answer has remained the same: regulatory uncertainty. In our recent survey, this is still the primary issue faced by 64% of advisors.

So, imagine, when the biggest obstacle is removed, how much of this $20 trillion will flow into the cryptocurrency market.

Take Wall Street as an example. In recent years, some of the largest banks have either abandoned cryptocurrencies or cautiously entered the field for the same reasons. For example, banks like Bank of New York, Nasdaq, and Deutsche Bank have announced plans to launch cryptocurrency custody services in the past two years, but these initiatives were eventually shelved due to regulatory uncertainties.

If you think BlackRock’s entry into the cryptocurrency field has had a positive impact on the market, imagine the entire Wall Street accepting cryptocurrency and treating it as an indispensable part, what an unstoppable wave it would unleash.

The market will realize that we are in a new era of cryptocurrency, which will drive the entire industry to new heights and historical highs.