Organization & Compilation: Deep Tides TechFlow

Guest: Andy Baehr, Managing Director of GSR Asset Management

Host: Steve Erlic, Head of Research at Sharplink

Podcast Source: Bits & Bips (interview column under Unchained)

Original Title: Is This Crypto Rally Real? GSR's Andy Baehr Maps the Signals to Watch

Broadcast Date: July 17, 2026

Conflict of Interest Statement: GSR is a leading global cryptocurrency market maker, with revenues dependent on market trading volume and volatility; its asset management department recently launched the Core3 ETF (BESO) holding BTC/ETH/SOL. The guest discusses the overall market trend and does not recommend specific assets.

Key Summary

Andy Baehr previously led product and research at CoinDesk Indices, and held leadership positions in the derivatives departments of Credit Suisse, Barclays, Morgan Stanley, and Deutsche Bank. He currently oversees the asset management business of GSR, one of the world’s largest cryptocurrency market makers. His framework for measuring market conditions is straightforward: the market slides along a spectrum, with one end being "ambivalence" and the other "conviction." The current market is stuck at the ambivalence end, and every rebound is like a single-stage rocket; once the first stage burns out, there is no second stage. He provided three signals to track: DeFi borrowing rates, the unexpected passage of the CLARITY Act, and the formation of a "hawkish peak" consensus by the Federal Reserve. The most direct judgment is whether the rebound triggered by last week’s fall in CPI can be sustained, which can be seen from the USDC borrowing rate on Aave. Currently, it's about 3.75%, similar to the yield on U.S. Treasury bonds. This number speaks volumes about low energy.

Highlights of Opinions

What is "Fed Day"

• "Since 2022, we have not truly seen a hawkish peak. At that time, the Fed aggressively raised interest rates to digest the fiscal stimulus after the pandemic, causing significant strain on crypto assets and stocks because we didn't know how high the rates would go."
• "Imagine a 'Fed Day', the moment when we collectively feel, 'Okay, we know where interest rates will end.' Before that, it's hard to believe any rebound can sustain."
• "Once we pass that peak, we will be able to see the other side of the hill, and market sentiment will shift very quickly."

Three Levels of Market Energy

• "About 2/3 to 3/4 of the entire crypto market is comprised of derivatives trading, while only 1/4 to 1/3 is spot. Derivatives are crucial in determining price direction."
• "Last year's perfect rebound had three phases: the first phase was ETH short-squeeze; the second phase was when crypto-native traders flooded into spot and perpetual contracts after seeing a trend form; the third phase was when ETF funds began to net inflows, to the point where the inflow into ETH ETFs even surpassed BTC in May and June."
• "If a rebound does not have new layers of buying entering, it is just a single-stage rocket. Once it burns out, it falls back."

Focus on DeFi Rates, More Useful than K-lines

• "After last November's presidential election, borrowing rates on Aave surged above 20%. And now? They are around the risk-free interest rate, about 3.75% to 4.1%."
• "No credit spread indicates that no one is willing to pay a premium to leverage to borrow. This is the most direct evidence of low energy."
• "Imagine if Warsh had a particularly strong cup of coffee one morning and decided to cut rates. Asset prices would rise, Bitcoin would rise, and then people would rush to borrow from Aave. Because it is a demand-driven pool, DeFi rates will soar instantly. That’s when you know the market has real energy."

DAT Treasury Temporarily Absent

• "Strategy just sold nearly $500 million in stocks via ATM and hasn't bought a cent of Bitcoin. They are keeping the money to pay preferred dividends."
• "DAT is likely to be a buyer in the middle of a rebound since shareholder sentiment takes time to transmit. But ETF funds are not long-term capital, and the last eight weeks have proven that."

CLARITY Act: From 75% to less than 40%

• "The longer an issue is delayed, the lower the probability of eventually being completed. Now we need nearly zero disruption and a strong tailwind to complete it in just three weeks."
• "The probability on Polymarket has linearly dropped from 75% in May to now less than 40%. Every day it does not pass is a wasted day."
• "The issue of moral clauses, in my opinion, is a 'tasty political morsel' that Democrats want to take home, and the disclosure of the presidential family's profits from digital assets is adding fuel to the fire."
• "But if it does pass, the market will treat it as an unexpected occurrence. Surprises are one of the strongest emotions driving price fluctuations. It's hard to imagine that the market won't rally after it passes."

The Authenticity of the Rebound: Don’t Just Monitor CPI

Steve Erlic: The June CPI is 3.5% year-on-year, and the core CPI holds steady for the first time in five years. This is the most direct trigger for this round of rebound. However, many reasons for the drop in CPI seem temporary, and it may not be replicated next month. Kevin Warsh said in a congressional hearing that 'inflation is a choice,' suggesting he can continue to be hawkish. How do you view the nature of this rebound?

Andy Baehr: We have been using the term "ambivalence" to mark the market state for much of Q2 and even the end of Q1. Ambivalence does not mean the market does not care about what it is doing. The market can show what appear to be pulsing rebound patterns; you even see a little bit of energy returning to the perpetual contract market, only for the rebound to dissipate rapidly, leading to liquidations and returning to the starting point.

Bitcoin surged through $80,000 around the time of the Spring Consensus Conference from a high of around $79,000, only to be smashed down to around $61,000, near the production cost line. This process actually brought some energy back to the market, but we are still in this ambivalent stage.

The opposite of ambivalence is conviction; it means you can reliably depend on the rebound to continue and genuinely form a different momentum cycle. The key question is: is this just another single-stage rocket, or is it finally starting to grow legs?

Looking more broadly, we are currently in an environment where we do not know where the "hawkish peak" lies. The last time we saw a similar situation was before 2022, when the Fed aggressively raised rates to digest fiscal stimulus after the pandemic, causing significant strain on crypto assets and stocks. Why? Because we do not know where the peak of hawkishness is.

Imagine a "Fed Day". That moment when we collectively feel comfortable, knowing where interest rates will end. We have a new Fed chair whom we are still not familiar with, but he is clearly not someone who will soothe the markets. Before collective recognition reaches that node, it’s hard to believe any rebound can reliably sustain.

Steve Erlic: What do you think of Warsh as Fed chair? He doesn’t want to give forward guidance, nor release dot plots. He wants the Fed to react to data. But at the same time, he has a president who wants low rates.

Andy Baehr: Clearly, he is not a Fed chair who will calm the markets. He boldly proclaimed his independence in his confirmation statement, refusing to attempt to soothe the market or overly disclose information to it. This represents a new relationship for the world and the Fed chair.

His situation is also not simple. Energy prices have calmed down, but geopolitical issues may cause them to spike again in a very short time. People are largely uncertain about what will happen; they are simply pricing expectations into interest rate futures. Whether rates rise early or late, to what extent, rate hikes are inevitable, and we do not know where the endpoint is.

For crypto, this ultimately boils down to two variables: inflation expectations and nominal interest rate expectations. In 2022, nominal interest rates accelerated sharply, directly breaking through inflation expectations, which was particularly tough for Bitcoin, as expected real rates were rising. Only when expected real rates can be better understood will macro support for Bitcoin become more favorable. More practically, this will also provide people with a clearer understanding of the cost of financing in fiat currencies, thus providing more leverage to the crypto system. And the crypto market urgently needs that leverage to restore the declining volatility and trading energy that has persisted since October of last year.

The Stock Market is Spinning Madly, While Crypto is Left Out

Steve Erlic: The Mag 7 continues to struggle, while AI stocks are soaring. We've seen a rotation into small-cap cyclical stocks like the Russell 2000. What does this mean for risk sentiment? How does it affect your view of the crypto market?

Andy Baehr: This reminds me of the crypto performance in Q2. Although Q2 was bad, small-cap cryptocurrencies actually outperformed BTC, ETH, and SOL; even XRP is rising, which is quite astonishing.

I worked on the CoinDesk 80 Index, which covers mid to low market cap tokens ranked 21 to 100. In any healthy or even neutral market conditions, you should see large-cap tokens outperforming small-caps because the collective market attention is focused on those with better liquidity and larger names, which is a reliable normal market indicator. What we saw in Q2 was the opposite: small tokens dropped less than large tokens. This indicates that funds are fleeing from ETFs, perpetual contracts, spot markets, and DAT Treasury companies, withdrawing from those major assets. This may signal a sort of capitulation at the end of Q2.

As for the stock market rotation, traders are chasing where the action is. Crypto lacks energy also because other sectors have more dazzling opportunities like SpaceX's IPO, Anthropic, and OpenAI, causing funds to flow out of crypto ETFs to seize these opportunities.

Steve Erlic: So from the trading desk's perspective, how is smart money positioning now? Who will be structural buyers? ETF funds are not permanent capital, as proven in the past eight weeks. The supply of stablecoins has decreased by about $10 billion since May, the largest contraction since the Terra/Luna collapse. DAT Treasury companies are also not in the buying camp. Strategy just sold nearly $500 million via ATM and hasn’t bought a cent of BTC, keeping funds to pay preferred dividends. Metaplanet is similar.

Andy Baehr: We are optimistic about DAT; they can indeed help complete the puzzle of the digital asset market: a treasury focused on a single digital asset along with the local skills to manage that asset. Your company and others that do well can provide stock investors with an interesting way to gain exposure to digital assets with additional features.

But what role did DAT play in last year’s perfect rebound? They were not the first to come in. The textbook process of last year's rebound was: First, ETH short-squeeze; at that time, a concentrated long position in BTC, short in ETH began to unwind. Second, crypto-native traders saw the trend forming and rushed into spot and perpetual contracts. Third, by May and June 2025, ETF funds started to reverse with net inflows, with ETH ETF inflows even surpassing BTC, which was shocking at that time. Then the passage of the GENIUS Act added fuel to ETH, as too many stablecoins rely on the Ethereum network.

DAT should be buyers joining in the middle of this rebound, as shareholder sentiment takes time to transmit, and rising stock prices create momentum for more token purchases. They are structural and more permanent holders, unlike ETF holders who are short-sighted.

A Direct Signal: Pay Attention to DeFi Borrowing Rates

Steve Erlic: Have you seen any specific signals changing? Like the bullish/bearish ratios, DeFi rates rebounding?

Andy Baehr: When I was at CoinDesk, I spent a lot of time watching Aave's rates. We published a daily interest rate based on Aave. After last November's presidential election, these rates skyrocketed above 20%. And now? They are around the risk-free rate, SOFR ranging from 3.75% to 4.1%. DeFi does not have credit spread on the money market, indicating that nobody is in a hurry to borrow money to leverage.

The most interesting part is, imagine a scenario: Warsh wakes up one morning after having a particularly strong cup of coffee, feeling good, and announces an unexpected rate cut. Asset prices would rise, Bitcoin would rise. Then people would flock to borrow from Aave. Because it’s a demand-driven pool, Aave’s rates, as well as every Vault in Morpho, Gauntlet, Stakehouse, Beta, and Concrete, would surge in an instant. People would be eager to leverage.

Leverage is what truly pushes prices up. It pushes to levels that could trigger ETF fund inflows, levels that could provoke DAT increases, levels that could encourage long-term holders to step in. But prior to that, if DeFi rates remain around the risk-free rate, that signifies low energy.

This is a very easy signal to monitor. These rate models are simple supply-demand linear functions: the more supply, the lower the rates, and the less demand, the lower the rates. When a huge amount of supply floods into these platforms saying, "Give me any yield," the rates naturally settle at the lowest levels.

The Fixed Income Market of DeFi is Quietly Taking Shape

Steve Erlic: You mentioned the new on-chain fixed income products and Vaults. How are traders using these? How should ordinary investors use DeFi rates to judge market energy?

Andy Baehr: Think about how most people interact with crypto assets. Buying and selling tokens, trading perpetual contracts or options, these are asset-based activities that feel more akin to stocks or commodities in the traditional world. These models are less suited to create a fixed income market or a monetary market or build a yield curve parallel to the traditional world.

DeFi is gradually making fixed income solutions. There is no central bank, only supply and demand; the money market of DeFi doesn't need large institutions to influence the next day’s SOFR rate through overnight repos, it's just people buying and selling in real time. Now these activities are clustering together, allowing us to see where stablecoin borrowing rates should approximately be.

Vaults are a great package. Managers identify various lending pools, put them into one portfolio, and this portfolio issues a token representing ownership or income rights. Essentially, it's just a money market fund. Of course, it’s not a fund, not a security, and most are unregulated. But it is available 7x24, accessible globally. As long as people do their homework and know what they are participating in, this is a highly efficient product.

From the perspective of asset managers, the role of Vault managers bears a fiduciary responsibility: to be accountable for the results, and to disclose information to Vault holders. This is how I view this from the perspective of my CFA principles and values, regardless of whether the law requires it. Money market funds are securities, and this growth process will inevitably come with some kind of clarification regarding the standards that managers should maintain.

CLARITY Act: The Forgotten Catalyst

Steve Erlic: At this very moment, the White House is holding a meeting. The President, Chief of Staff Susie Wilds, several Republican senators participating in the negotiations, and Kristen Smith from the Blockchain Association are trying to finalize an agreement on the moral clauses. This is key to securing Democratic support. A new version of the Senate bill could be coming out at any time. If it can pass before the August 7 deadline, will this be a shot in the arm for the market?

Andy Baehr: Legislation is very important in the long run. Just think about how much time this industry or related industries might have wasted to reach today’s point, it’s painful. But the longer an issue is delayed, the lower the probability of being completed in the end.

The probability on Polymarket has linearly dropped from 75% in May to now less than 40%. Every day it does not pass is a wasted day. The issue of moral clauses, I find it hard not to see it as a "tasty political morsel" that some people want to take home and enjoy later. The disclosure of the presidential family's profits from digital assets over a billion dollars is a ready target for Democrats.

But I do believe that if it passes, the market will treat it as an unexpected event. This isn’t something that’s been anticipated, not a big deal. Surprises are one of the strongest emotions driving price fluctuations. It’s hard to imagine that the market won’t see a rally after it passes.