At a Crossroads: Bitcoin vs. "Crypto"

We wrap up the half-year mark with what felt like a full decade of macro and geopolitical volatility. While most expected President Trump's second term to be a volatile and acrimonious tenure, few had expected the multipronged events we've
witnessed globally, along with potentially game-changing developments.

On the geopolitical side, we've seen some rapid escalation and then de-escalation of kinetic conflicts between Russia-Ukraine, India-Pakistan, and most recently Iran-Israel, which caused a lot of volatile, albeit short-lived outbursts for risk
assets and commodity prices.

For policy changes, we've seen the passage of an aggressive spending Republican budget bill ("Big Beautiful Bill"), a 1971-like rewriting of the global trading landscape with the "Liberation Day" tariffs, and recent dovish pivots with the Fed
back on the rate-cutting path as the US economy enters a mild slowdown.

On the capital markets side, US equities saw a V-shaped recovery, which saw record losses in March and April, followed by a whiplash-inducing rally to new all-time highs in July. Emerging market assets were strong all year long, while the
USD had one of the worst starts ever, with foreigners bailing on US assets on the back of the trade-reset. US bonds saw an early-year sell-off, which has since recovered as macro investors re-acquainted with how resilient treasuries are with
the Fed manning a tight ship.

Meanwhile, crypto and digital assets re-entered the mainstream mind share with record-breaking ETF inflows, a 180-turn in regulatory and institutional buy-ins (US Genius Act, HK stablecoin policy, Robinhood adopting tokenized stocks on
Arbitrum, etc.), a tremendously successful Circle IPO, and of course, a massive rise in BTC and now ETH treasury plays as TradFi activities are increasingly driving BTC price action over natives and on-chain activities.

Crypto Institutionalisation

The institutionalisation of crypto comes as a bit of a double-edge sword; on one hand, the ginormous TradFi wallets are helping to propel BTC to be one of the best performing classes year-to-date, as the mainstream has completely bought
into the long-term store of value narrative, especially given the weak USD trajectory. We emphasize long-term here, as the day-to-day price action of BTC is still very much a SPX or Nasdaq-driven proxy, with prices moving in tandem with the day-to-day risk sentiment. CME and other TradFi venues are reporting record-setting open interests across BTC futures, while options use have also been exploding as institutional players are leaving an ever-visible footprint in driving price action.

On the flip side, the emerging dominance of ETFs, fiat-backed stables, and even tokenization has weakened a lot of the "OG narratives" and onchain developments in the digital asset space. BlackRock ETFs have effectively substituted on-
chain custody benefits against a bilateral exposure with the world's largest asset manager, fiat-backed stablecoins have flipped the system back to a USD-denominated world with strict banking KYC-rails to on/off-ramp, and the current
tokenization push has weakened a lot of the development interest in L2/new chains as more of the work is now done offchain.

Is there any wonder why this crypto cycle has been unprecedented, with many altcoins trading at record lows while BTC reaches new highs? Like all things in life, new cycles will always redefine new winners and losers.

The Haves and Have-nots

This "haves and have-nots" split has been our central view ever since the first BTC ETF decision was announced, and we see no change to this structural view for the foreseeable future. Regulatory clarity is good in the sense that capital allocators and new enterprises can now have a roadmap of what they can or cannot do, but it is also very clear on what's no longer allowed in the new regime. As a result, there will be less 'wild wild west' sentiment across crypto development, losing much of the early creative energy and experimental thrill that had powered the industry since the mid-2010s. That will be replaced by a more standard VC roadmap based on what the regulatory frameworks lay out, and perhaps dominated more by the established names we know too well, rather than grassroots crypto groups.

BTC should continue to do well and make new highs as it continues to develop into an accepted Treasury asset collateral, while ETH is a trickier call and dependent on how well it executes on its DeFi potential to augment the existing financial
system. Existing altcoins will likely continue to struggle as on-chain activity slows with a lack of new capital coming in, with attention being superseded by a new wave of TradFi-backed projects that will likely surface once current regulations
become more settled. Finally, crypto implied volatility has also been on a one-way street down over the past two years and is the clearest sign that our asset class is entering into a full maturity stage.

We think of it as a bittersweet moment that BTC is finally enjoying its adoption moment, though perhaps at the expense of the greater ecosystem as a whole. However, successful systems will always adapt, and we urge everyone to focus on the bright side to see what new applications and mainstream use-cases we can finally deploy for digital assets. We expect to see new highs for BTC into the 2nd half of the year and look forward to a new wave of digitalisation innovation as
stablecoins enter our everyday lexicon and become a significant component of our ever-evolving financial markets.

Augustine Fan is an experienced professional with over two decades of distinctive track records across Wall Street, family offices, private equity, and now crypto. Along with his current leadership efforts at SOFA.org, he also serves as Partner & CFO of SignalPlus, a leading digital asset software technology for crypto optionscPrior to joining crypto, Augustine worked for a decade at Goldman Sachs as a US interest rates trader and macro specialist in NY, London, Tokyo, and HK offices. Following his time on Wall Street, he joined a significant shipping-based family office in HK to help manage one of the most active secondary macro trading portfolios in Asia. He further refined his investment acumen as the CIO for another HK-based family office, with a deeper focus on private equity, credit, real estate, listed vehicles, and frontier investments.