Why use Ethereum and Bitcoin for asset allocation? - ChainCatcher

Original Title: Hong Hao: Asset Allocation with Ether and Bitcoin

Original Author: Hong Hao

In recent years, cryptocurrencies have quietly begun to rewrite the chapters of global finance. Recently, as the Trump administration accelerated its relaxation of regulations on cryptocurrencies, the revolution of the global monetary system has begun to speed up. The two pillars of cryptocurrencies, Ether (ETH) and Bitcoin (BTC), have become the core and backbone of this revolution, shining brightly in the new global financial system. Recently, the United States passed the "GENIUS Act", bringing stablecoins under the regulation of securities. This act has finally legalized stablecoins and established Ether's important position in the promotion and use of stablecoins.

In June, I shared my views on how cryptocurrencies will create investment opportunities for investors in the second half of this year in an article titled "Hong Hao: Outlook for the Second Half of 2025 - Cycles and Games" with exclusive readers, and I supported this view with detailed charts, data, and quantitative models. In short, I believe that the improvement in global liquidity conditions will benefit risk assets, especially Bitcoin and Ether, which are asset classes very sensitive to liquidity conditions. During my reader meetings in June and July, I further demonstrated this prediction and the probability of its formation to the audience on site (Figure 1).

So far, Bitcoin has risen from about $100,000 per coin when I started writing in June to $120,000 per coin. In just over a month, the return is nearly 20%. While processing quantitative model data for this article, I noticed that the pricing unit for Bitcoin on the Bloomberg terminal has changed to millions of dollars per unit.

Figure 1: Improved liquidity conditions benefit Bitcoin and Ether (Data updated in June)

Bitcoin was born in 2009, sparked by the mysterious Satoshi Nakamoto in the world of cryptocurrency. Bitcoin uses complex mathematical calculations to ensure transaction security, but the cost is high energy consumption. Bitcoin's design allows it to process only a few transactions per second. From this perspective, Bitcoin's financial attributes are simple and pure, created solely for investment and value storage. The total supply of Bitcoin is capped at 21 million coins, and its limited supply and secure attributes make Bitcoin more like "digital gold," attracting countless followers. In July 2025 alone, Bitcoin ETFs raised 4.2 billion USD, demonstrating its prominent market position.

Ether is like a newborn calf, appearing a few years after Bitcoin came into the world. Ether is not just a currency, but rather a network that nurtures decentralized applications. The "Merge" in 2022 shifted Ether to a proof of stake system, maintaining the network through staking Ether, which is both energy-efficient and fast, allowing thousands of transactions to be processed every few seconds with second-layer technologies like Arbitrum. Ethereum's design has no fixed upper limit for supply, but the EIP-1559 mechanism introduced in 2021 burns a portion of fees, potentially leading to deflation during busy network times. Ethereum accounts for 70% of the DeFi market share, processing over $1 trillion in stablecoin transactions annually, pulsing with infinite possibilities as the heartbeat of the digital economy.

The distinction between Bitcoin and Ethereum is akin to gold and fertile soil. Bitcoin is steady and reserved, safeguarding wealth; Ether is dynamic and changeable, fostering innovation. Bitcoin transactions are slow and its functionality is singular; Ethereum is fast and flexible, with smart contracts opening up vast realms for DeFi, stablecoins, and NFTs. The scarcity of Bitcoin serves as a stabilizing force, while Ethereum's dynamic supply makes it more suitable for network transactions and settlements. Both cryptocurrencies excel in their respective arenas, together outlining the future application blueprint of cryptocurrency.

Recently, the emergence of the "GENIUS Act" has established the position of Ether in the issuance and use of stablecoins, and has essentially recognized the legal status of cryptocurrencies. This U.S. law, signed on July 18, 2025, has set rules for stablecoins—a type of digital currency whose value is often pegged to the U.S. dollar. In the past, U.S. regulation of cryptocurrencies has been ambiguous, and the SEC's stringent enforcement has deterred businesses. The "GENIUS Act" requires stablecoin issuers to hold equivalent U.S. dollars or government bonds, undergo regular audits, comply with anti-money laundering regulations, and prioritize the protection of holders in the event of bankruptcy, while banning yield-bearing stablecoins to prevent speculative risks. This act serves as a spring breeze, bringing legitimacy and confidence to the crypto industry, attracting banks, tech companies, and retail giants to enter the stablecoin market. It is expected that by 2026, the stablecoin market will reach between $500 billion and $1 trillion, facilitating the integration of cryptocurrencies into mainstream finance.

Ether thrives in this transformation. Ether accounts for about 70% of the stablecoin market (250 billion USD), including Tether (USDT) and USD Coin (USDC). Every stablecoin transaction requires Ether to pay fees, and the surge in transaction volume will directly increase the demand for Ether. After the bill was passed, the price of Ethereum soared 8% to 3288 USD, and there was even heated discussion on platform X that its value may reach 10,000 USD. However, compliance costs may make it difficult for small companies, and the ban on yield-generating stablecoins will increase DeFi volatility. But Ethereum's impeccable ten-year operational record and its dominant position in DeFi make Ether the preferred choice in the stablecoin boom.

Ether has long been overshadowed by the halo of Bitcoin. With its simple positioning as "digital gold" and a market cap of over a trillion dollars, Bitcoin has always been the darling in the early stages of a bull market, especially during the high inflation period from 2021 to 2023. The SEC's crackdown on the Ethereum ecosystem, the high gas fees, and the market's preference for Bitcoin's stability have all made Ethereum struggle. However, in July of this year, Ethereum made a strong comeback, with its ratio to Bitcoin rising by 5.96% to 0.02670, though it still remains near historical lows (Figure 2).

Image 2: Bitcoin/Ether ratio indicates that Ether will rise

The "GENIUS Act" has catalyzed the stablecoin boom, increasing the demand and trading volume for Ether; the Ether ETF has already attracted $2 billion this month, with institutions like Sharplink hoarding $866.8 million in Ether; "layer two technology" has alleviated the fee bottleneck; the Trump administration's friendly stance on cryptocurrency policy, such as the cancellation of stringent SEC regulations, has injected vitality into the Ether ecosystem. Ethereum's DeFi and stablecoin trading (over $1 trillion annually) far exceeds Bitcoin's single function, allowing it to rise and shine in the cryptocurrency world.

The surge of Ether this month demonstrates its potential. If the stablecoin market exceeds $500 billion by 2026, the demand for gas fees and the destruction mechanism will drive the price of Ether to an all-time high. In the long run, if the cryptocurrency market reaches $10 trillion by 2030, the core position of Ether in DeFi and asset tokenization will continue to elevate its value.

Of course, the risks of investing in cryptocurrencies should not be underestimated: the market cap of Ether at $300 billion may struggle to support a trillion-dollar stablecoin market; competitors like Solana will also be eyeing the space; economic or regulatory fluctuations could stir up new waves. Investors need to be cautious in their allocations. The Huaxia Ether ETF listed in Hong Kong, including the HKD-denominated 3046.HK, the USD-denominated 9046.HK, and the RMB-denominated 83046.HK, can provide investors with the convenience of investing in Ether, which is a pillar of the future of the cryptocurrency world. This is an ETF product approved by Hong Kong regulators and listed on the Hong Kong Stock Exchange, ensuring safety. Huaxia's two products also have the best performance in terms of size and average daily trading volume among similar products, with liquidity not being an issue.

The US dollar, as the global reserve currency, accounts for 88% of international transaction share and 58% of foreign exchange reserves, with a solid foundation. Stablecoins, Ether, and Bitcoin currently still find it difficult to shake the dollar's dominance. Stablecoins are often pegged to the dollar, and the "GENIUS Act" also requires a one-to-one reserve. Therefore, the expansion of the stablecoin market will actually increase the global financial system's demand for the dollar. Ether supports stablecoin transactions, with fees paid in Ether for each transaction, and even stablecoins collateralized by Ether (such as DAI) are often pegged to the dollar. This issuance and payment structure indirectly reinforces the dollar's position. Therefore, Bitcoin's influence as a store of value on the dollar's dominance is currently limited. Non-dollar-pegged stablecoins may form an independent ecosystem, but they will still be constrained by Ether's market value and the dollar-oriented benefits of the "GENIUS Act", making it hard to gain traction in the short term.

The global monetary system is quietly transforming under the influence of cryptocurrencies. Ethereum's DeFi reshapes lending and trading, Bitcoin fights inflation, and stablecoins enable low-cost cross-border payments. The Trump administration banned central bank digital currencies and promoted private stablecoins on Ethereum, accelerating their adoption in regions with unstable currencies and challenging the traditional banking system. However, the volatility of cryptocurrencies, security risks, and regulatory uncertainties will remain potential issues. The crypto market is still small compared to global finance (trillion dollars), and in the future, a diverse system may emerge where the US dollar, stablecoins, and cryptocurrencies coexist. Other countries, such as China or the European Union, may divert the influence of the US dollar with their digital currencies, but the stability and credibility of the dollar make it difficult to shake in the short term.

In summary: Ethereum and Bitcoin are like the two main pillars of the digital world: Bitcoin is a store of value, while Ethereum is a tool for transactions. The "GENIUS Act" grants legitimacy to stablecoins, and issuing stablecoins based on Ethereum as a transaction settlement network will significantly increase the demand for Ether, making its performance in July 2025 surpass that of Bitcoin, and it is very likely to reach a historical high. In the short term, the development of stablecoins and cryptocurrencies will instead solidify the dominance of the US dollar, while in the long term, it will promote a more open monetary system. Ethereum, Bitcoin, and other cryptocurrencies should all be an essential asset class for investors amidst the wave of digital assets (Figure 3). On July 17, 2025, Huaxia Fund ( in Hong Kong ) also launched the second batch of tokenized funds, including the Huaxia USD Digital Currency Fund and the Huaxia RMB Digital Currency Fund, which, together with the Hong Kong Dollar Digital Currency Fund approved earlier this February, form a complete series of tokenized currency funds.

Figure 3: The return cycles of Bitcoin and Ether indicate that Ether will rise.