Turning point for Bitcoin? Where crypto goes from here

It has been a trying year for the crypto business. After reaching a peak of more than $68,000 in November 2021, bitcoin has plunged to hover around $20,000.

But for long-term ETF investors, some experts recommend taking crypto’s fall in stride.

“If you’re going to do this right, then what’s happened in the last nine months is totally 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 normal market failure and you ignore it,” he added.

But with bitcoin nearly two years old, the short-term tempers are met with a mix of positive and negative factors that govern where the crypto community goes from here.

“It’s a really dynamic moment in the market,” Matt Hougan, CIO of Bitwise Asset Management, told Pisani on Monday.

A massive technical upgrade in 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 is working against it.

“It creates this volatile market where crypto goes up and down and can’t quite figure out which way to go,” Hougan said. “And I think we’ll probably be stuck there, at least through September.”

Edelman explained that in order for institutional investors to engage with Wall Street firms, endowments and pension funds, regulatory and legislative rules must be in place.

“The adults in the room realize that regulation is a good thing,” Edelman said. “Right now we have 1% doing crypto. You’re not going to get the other 99% until they have clarity on what the rules of the road are.

“We’re seeing new rules coming out of the Treasury Department, the IRS, FINRA and from the Fed,” he said. “And from the SEC and the CFTC. We have over 50 bills in Congress right now. And all of these are very healthy.”

SEC Chairman Gary Gensler has said the agency should have an important enforcement role in crypto, especially for tokens. In a speech this month, Gensler issued a warning signal to organizations he believes are violating existing securities laws, asking staff to possibly “fine-tune compliance with crypto-security tokens and intermediaries.”

“I think it was a pretty direct threat to crypto trading venues — big entities like Coinbase,” Hougan said. “They are clearly on his horizon.”

In July, shares of the crypto firm fell after it was announced that it was facing an SEC investigation into whether the platform offered unregistered securities.

“I’m happy to say it again and again: we’re confident that our rigorous due diligence process — a process the SEC has already gone through — keeps securities off our platform,” said Coinbase Chief Legal Officer Paul Grewal on Twitter.

Proposals for more 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 accused BlockFi Lending of failing to register the offering and sale of its crypto loan product. The firm agreed to settle the charges, pay a $50 million fine and end unregistered offers and sales of the lending product.

“A year from now, the major trading venues will be in the process of registering with the SEC,” Hougan said. “I think individual tokens, that’s a much longer term.”

Although the speculative assets have a challenging path ahead, Edelman said the number of people owning cryptocurrencies continues to rise steadily.

“What’s interesting is that, despite that [Coinbase is] down 70% from the high, the number of people who own it is unchanged,” he said. “Which means those who wanted are not fazed by this.”

Beyond the crypto community, adoption rates from major investment firms show that digital currencies are being embraced by Wall Street, Hougan said.

“Blackrock and Schwab coming in reinforces for everyday investors that bitcoin is not going away,” Hougan said. “I think it’s now decided. It’s now how big the future is.”