Donald Trump’s victory removes a “regulatory cloud” that has hung over the cryptocurrency industry, according to Matt Hougan, CIO of Bitwise Asset Management, a firm whose spot bitcoin ETF saw nearly $101 million of inflows a day after the Nov. 5 U.S. presidential election.
“That’s an extremely strong day,” Hougan said of the inflows the Bitwise Bitcoin ETF had Nov. 6 according to Farside Investors, which provides daily flow data for U.S. spot bitcoin ETFs. “I think it’s a down payment on what’s to come.”
The ETF, known by the ticker symbol BITB, had net assets totaling $3.2 billion as of Nov. 7, according to Bitwise’s website.
In recent years, the crypto industry has faced both a hostile Biden-Harris administration and a hostile Securities and Exchange Commission, according to Hougan, who said “that regulatory cloud has delayed or prevented many professional investors from allocating because of reputational risk, because of … uncertainty and because it introduces extra volatility into the asset.”
“That’s now been swept away,” said Hougan, who explained that by professional investors he was referring to a class that includes financial advisers, family offices, hedge funds and institutions such as pension funds.
“I think all of them are going to increasingly allocate to crypto,” Hougan said. “I think this election removes uncertainty and resolves risks that have prevented all of them from doing so.”
Still, “I think the time frame over which they do it will differ,” the CIO said.
“I think you’ll see … family offices and RIAs (registered investment advisers) continue to move more quickly, and true institutional investors move more slowly just because of the cadence at which their investment committees meet,” Hougan said, adding that Trump’s election “absolutely” paves the way “for more institutions to get off zero and those who are off zero to get to larger percentage allocations.”
The SEC has taken some “very positive actions” on crypto, including approving spot bitcoin ETFs, Hougan said.
“But they have also pursued an approach of regulation by enforcement with a huge number of lawsuits against a wide variety of the crypto industry, many of which have heretofore been unsuccessful,” the CIO said. “They didn’t take a dialogue-based approach or a rules-first approach to regulating this market.”
As for the administration, Hougan pointed to President Joe Biden’s May 31 veto of a congressional resolution that would have overturned SEC guidance that hinders banks’ ability to custody digital assets.
Known as Staff Accounting Bulletin No. 121, or SAB 121, the 2022 guidance requires any custodian of digital assets to report those assets on their balance sheets, thereby raising capital requirements and making it harder for banks to offer such services. The resolution had passed both the House and Senate with bipartisan support.
Before Trump’s win, “we didn’t have any … understanding of sort of when the industry would get regulatory clarity,” Hougan said.
“And now … crypto’s played a big part in the election and there’s a pro-crypto congress and a pro-crypto administration (is) moving into the White House, so it feels like it’s accelerating rapidly,” the CIO said.
When it comes regulatory clarity, Hougan pointed to “some big things” he’d like to see.
“We don’t have a market structure bill,” the CIO said, adding that the Commodity Futures Trading Commission and the SEC “disagree on what’s a commodity and what’s a security, and there’s no framework through which crypto assets can fit into either of those round holes.”
The crypto industry needs a regulatory framework “that provides clear rules of the road on what’s allowed and what’s not allowed in a blockchain and a related token and who governs them from a regulatory perspective,” he said.
Hougan would also like to see legislation regarding stablecoins, a type of cryptocurrency whose value is pegged to another asset such as the U.S. dollar. The CIO would also like to see “legislation that allows banks and brokers to engage with bitcoin so they can provide high-quality service (in) the space,” he said.
If the crypto industry had those three things, “I’d feel that we were on an even footing with other financial assets,” Hougan said.
“We’ve seen how successful crypto can be when it’s not on an even footing,” the CIO said. “If we can get on an even footing, I think it would be great.”
On Oct. 15, Bitwise announced it had crossed $5 billion in assets under management.
