Crypto

Bitwise CIO: FTX is what crypto needs to go mainstream

Cryptocurrency markets were plunged into crisis last week after the news of the collapse of the second largest exchange, FTX, led by Sam Bankman-Fried. The events destroyed investor confidence in the industry and created massive volatility in this space.

“It’s shocking; it is overwhelming; it is disconcerting. It’s a black eye on crypto,” said Ric Edelman, former financial adviser and founder of the Digital Assets Council of Financial Professionals, during a webinar he hosted on the FTX debacle.

But Matt Hougan, chief investment officer at Bitwise Asset Management, doesn’t think this will change the future trajectory of cryptocurrencies, although it will take time for the system to heal. In fact, Hougan expects this to ultimately be a good thing for the crypto markets; it will bring the regulatory clarity needed to bring crypto to the mainstream.

“It’s going to catalyze regulators to get into the space, aggressively and quickly,” Hougan said during the webinar. “To a certain extent, it shows that they should have done it already. One of the reasons FTX has grown so rapidly and been headquartered overseas is that regulators have not specified how to regulate cash markets in the United States, so US institutions who wanted to trade in this market were forced to go overseas for these more innovative exchanges. . They had no choice here. So I think there’s some responsibility in blaming regulators for moving too slowly. But what we are going to get out of this is a regulated crypto market. And I actually think that’s going to be one of the keys to bringing crypto into the mainstream.

Hougan said better regulation is what will eventually get institutions off the sidelines and dip their toes into the crypto markets. And we will come to think of this period as the “wild west days” of crypto.

FTX has destroyed short-term investor confidence in crypto markets, Hougan admitted, and that will keep investors, who would otherwise enter at these prices, on the sidelines.

“The one thing investors hate, Ric, more than anything else is uncertainty, and that injects a lot of uncertainty into the market,” Hougan said.

Hougan also said it was a setback for the short-term prospects of a spot Bitcoin ETF, but in the long term it would lead to the regulation needed for multiple spot ETFs.

FTX is currently under investigation by several federal and state agencies, including the Department of Justice, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Texas State Securities Board.

“The fact that all of these agencies are now conducting hearings, investigations and prosecutions shows that there is in fact a solid set of crypto regulations already in place that could have protected investors in this case,” Hougan said.

With Democrats looking unlikely to retain control of the House of Representatives, U.S. Representative Patrick McHenry (RN.C.) is set to take over as chair of the House Financial Services Committee. (U.S. Rep. Maxine Waters, D-California, currently holds that position.) Hougan said McHenry is one of the most knowledgeable members of Congress on crypto.

“The key to crypto regulation right now is being informed,” he said. “The risk of crypto regulation is that they are misinformed, if they come from the kind of blind-eyed ostrich corner of the anti-crypto wing. As long as it’s balanced, the crypto industry should be happy about it.

“I think it will be a tougher environment than it would have been a year ago, but frankly, crypto deserves it,” he said. “And he’s got to go through that fire if he’s going to emerge in the industry which I think can be on the other side of the spectrum.

Hougan argued that the thesis behind crypto as a fundamental technological advancement is still there. In fact, more venture capital funds have gone into crypto in the past year than in its entire history, he said. But people will miss the positive fundamentals in the wash of this short-term news.

“Whatever fundamental metric you look at – users, revenue, developers, venture capital activity – they’ve all increased significantly over the past couple of years, and I think that sets the foundation for a really good bull market at the end of the tunnel, but for sure volatility before we get there,” he said.

He pointed to three milestones investors should look for in the coming months to see if crypto markets recover, including no new failures, clearer regulations, and new enforcement.

“The short term, as Matt said, is going to be volatile; the long term, we think, remains intact, and you have to decide if you have the guts to hang on in the short term to survive the long term,” Edelman said.

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