It’s been a busy year for the crypto business. After peaking at more than $68,000 in November 2021, Bitcoin has plummeted to around $20,000.
But for long-term ETF investors, some experts are advising that crypto’s demise should be taken for granted.
“If you get that right, then what’s happened in the last nine months is completely irrelevant,” Ric Edelman, founder of Edelman Financial Services, told Bob Pisani on CNBC’s ETF Edge on Monday.
“If you’re investing for the next five to 10 years, this is just a common outlier in the market and you ignore it,” he added.
But with Bitcoin hitting a nearly two-year low, short-term temperaments will face a mix of positive and negative factors that will determine where the crypto community will go from here.
“It’s a really dynamic moment in the market,” Bitwise Asset Management CIO Matt Hougan told Pisani on Monday.
A massive technical upgrade from Ethereum is a constructive force for the future of the world’s second-largest blockchain, Hougan said. A wave of institutional investors entering the market and an influx of venture capital activity are also forward-looking indicators of crypto’s future.
On the other hand, regulatory pressure from the Federal Reserve and the Securities and Exchange Commission works against it.
“That creates this volatile market where crypto goes up and down and doesn’t know exactly which direction to go,” Hougan said. “And I think we’re probably stuck there, at least until September.”
Edelman explained that institutional investors dealing with Wall Street firms, endowments and pension funds need regulatory and legal rules in place.
“The adults in the room are realizing that regulation is a good thing,” Edelman said. “Right now, 1% are engaged in crypto. You won’t get to the other 99% until you get clarity on what the rules of the road are.
“We’re seeing new rules from the Treasury Department, IRS, FINRA and from the Fed,” he said. “And from the SEC and the CFTC. We currently have over 50 bills in Congress. And all of that is very healthy.”
SEC Chairman Gary Gensler said the agency should play an important role in crypto enforcement, especially for tokens. In a speech this month, Gensler gave a warning to organizations he believes are violating existing securities laws, urging employees to potentially “refine crypto security token and intermediary compliance.”
“I think there was a pretty direct threat to crypto exchanges – big companies like Coinbase,” Hougan said. “You are clearly on his horizon.”
In July, the crypto firm’s shares plummeted after it was announced that it faces an SEC investigation into whether the platform offers unregistered securities.
“It’s something I like to say, we’re confident that our rigorous due diligence process — a process that the SEC has already reviewed — keeps securities off our platform,” Paul Grewal, Coinbase’s chief legal officer, said on Twitter.
Proposals for increased SEC oversight of the crypto community are likely to be met with hostility from the community itself, although the agency has already taken steps to enforce its regulatory agenda.
In February, the SEC charged BlockFi Lending with failing to register the offering and sale of its retail crypto lending product. The company agreed to pay the charges, pay a $50 million penalty, and cease unregistered offers and sales of the credit product.
“In a year, the major trading venues will be in the process of registering with the SEC,” Hougan said. “I think individual tokens are much longer term.”
Although speculative assets have a difficult path forward, Edelman said the number of people owning cryptocurrencies continues to rise steadily.
“What’s interesting is that despite the fact that [Coinbase is] “It’s 70% down from its peak, and the number of owners is unchanged,” he said. “That means those who wanted it won’t be alarmed by it.”
Beyond the crypto community, the adoption rates of major investment firms show that digital currencies are being embraced by Wall Street, Hougan said.
“The entry of Blackrock and Schwab reassures the everyday investor that Bitcoin is not going away,” Hougan said. “I think that’s settled now. It is now how big that future is.”