GSR Head of Asset Management: To judge whether this rebound is real, just watch one number on Aave

Compiled & Edited by: TechFlow

Guest: Andy Baehr, Managing Director of Asset Management at GSR

Host: Steve Erlic, Head of Research at Sharplink

Podcast Source: Bits & Bips (an interview program under Unchained)

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

Air Date: July 17, 2026

Conflict of Interest Statement: GSR is a leading global crypto market maker, with revenue dependent on market trading volume and volatility. Its asset management division recently launched the Core3 ETF (BESO) holding BTC/ETH/SOL. The guest discussed the overall market trend, not a recommendation for any single asset.

Key Takeaways

Andy Baehr previously led product and research at CoinDesk Indices and held leadership roles in derivatives at Credit Suisse, BNP Paribas, Morgan Stanley, and Deutsche Bank. He now manages the asset management business for GSR, one of the world's largest crypto market makers. His framework for assessing market conditions is simple: the market slides along a spectrum, with "ambivalence" at one end and "conviction" at the other. The market is currently stuck at the ambivalence end, where each rally resembles a single-stage booster rocket—once the first stage burns out, there's no second stage. He offers three signals to track: DeFi lending rates, an unexpected passage of the CLARITY Act, and the formation of a consensus around the Fed's "hawkish peak." The most immediate judgment: To see if this week's rally triggered by the CPI drop can sustain, look at the USDC borrowing rate on Aave. It's currently around 3.75%, roughly in line with US Treasury yields. This number says it all about what low energy looks like.

Highlights of Key Insights

What is "Fed Solstice"

• "Since 2022, we haven't truly seen a hawkish peak. Back then, the Fed was aggressively raising rates to absorb post-pandemic fiscal stimulus, making it tough for both crypto and equities because we didn't know how high rates would go."
• "Imagine a 'Fed Solstice'—the moment we collectively feel, 'Okay, we know where rates will stop.' Until then, it's hard to believe any rally is sustainable."
• "Once we cross that peak and can see the other side of the hill, market sentiment can shift very quickly."

Three Layers of Market Energy

• "About two-thirds to three-quarters of the crypto market is derivatives trading, with only one-quarter to one-third being spot. Derivatives are incredibly important in determining price direction."
• "Last year's perfect rally had three stages: first, an ETH short squeeze; second, crypto-native traders, seeing the trend form, flooded into spot and perpetual swaps; third, ETF inflows turned positive, and by May-June, ETH ETF inflows even surpassed BTC."
• "If a rally doesn't have new layers of buying joining in, it's just a single-stage booster rocket. It burns out and falls back down."

Watch DeFi Rates, Not Just Price Charts

• "After the presidential election in November last year, Aave's lending rates surged to over 20%. Now? They're roughly around the risk-free rate, 3.75% to 4.1%."
• "No credit spread means no one is willing to pay a premium to borrow and lever up. That's the most direct evidence of low energy."
• "Imagine Warsh wakes up one morning, has an extra-strong coffee, and decides to cut rates. Asset prices would rise, Bitcoin would rise, and then people would flock to Aave to borrow. Because it's a supply-and-demand priced pool, DeFi rates would spike instantly. That's when you know the market has real energy."

DAT Treasury Companies are Currently Absent

• "Strategy just sold nearly $500 million in stock via an ATM, without buying a single Bitcoin. They're holding the cash to pay preferred stock dividends."
• "DATs should be buyers that join in the middle of a rally, as shareholder sentiment takes time to transmit. But ETF capital is not long-term capital; the past eight weeks have proven that."

CLARITY Act: From 75% to Under 40%

• "The longer something is delayed, the lower the probability it gets done. We'd need almost zero interference and a strong tailwind to get it done in just three weeks."
• "On Polymarket, the probability has linearly declined from 75% in May to under 40% now. Every day that passes without passage is a wasted day."
• "The ethics clause issue, to me, looks like a 'tasty political snack' Democrats want to take home, and the disclosure of the presidential family profiting from digital assets only adds fuel to the fire."
• "But if it does pass, the market will treat it as a surprise. Surprise is one of the most potent emotions driving price swings. It's hard to imagine the market not rallying if it passes."

Authenticity of the Rally: Don't Just Watch CPI

Steve Erlic: June CPI was 3.5% year-over-year, and core CPI month-over-month was flat for the first time in five years. This is the most direct trigger for the recent rally. But many reasons for the CPI drop seem one-off and may not repeat next month. Kevin Warsh said in his congressional testimony, 'Inflation is a choice,' hinting he could remain hawkish. What's your take on the nature of this rally?

Andy Baehr: We've been using the word "ambivalence" to describe the market state for most of Q2 and even late Q1. Ambivalence doesn't mean the market doesn't care. You see seemingly plausible impulsive rallies, maybe a bit of energy returns in the perpetual swaps market, then the rally quickly fades, liquidations happen, and we're back to square one.

Around the time of the Consensus conference in the spring, Bitcoin surged past $80,000 from a high near $79,000, only to be beaten down to around $61,000, near its production cost. This process did bring some energy back to the market, but we're still in this ambivalent phase.

The opposite of ambivalence is conviction, where you can reliably count on a rally to continue and truly form a different momentum cycle. The key question is: Is this another single-stage booster rocket, or is it finally starting to grow legs?

Zooming out, we're in an environment where we don't know where the "hawkish peak" is. The last similar situation was before 2022, when the Fed was aggressively raising rates to absorb post-pandemic fiscal stimulus, making it tough for both crypto and equities. Why? Because we didn't know how high the hawkish peak would be.

Imagine a "Fed Solstice." It's the moment we collectively feel comfortable, knowing where rate hikes will end. We have a new Fed Chair whom people are not yet familiar with, and he is clearly not someone who will soothe the market. Until collective perception truly reaches that point, it's hard to believe any rally can be reliably sustained.

Steve Erlic: What's your take on Warsh as Fed Chair? He doesn't want to provide forward guidance or a dot plot. He wants the Fed to react to data. But at the same time, he has a president who wants low rates.

Andy Baehr: Clearly, this is not a Fed Chair who will soothe the market. He declared independence in bold in his inaugural statement, stating he won't try to comfort the market or overly inform it. This is a new kind of relationship for the world and a Fed Chair.

His situation isn't easy either. Energy prices have calmed down for now, but geopolitical tensions could send them soaring again very quickly. People are largely uncertain about what will happen, simply pricing expectations into rate futures. Whether sooner or later, how much, rate cuts will come, we just don't know the terminal point.

For crypto, it ultimately comes down to two variables: inflation expectations and nominal rate expectations. In 2022, nominal rates accelerated, breaking through inflation expectations, which was very tough for Bitcoin because real rate expectations were rising. A more favorable macroeconomic backdrop for Bitcoin forms only when real rate expectations can be better understood. More practically, it also gives people a clearer picture of fiat funding costs, thus providing more leverage to the crypto system. The crypto market desperately needs leverage to restore the volatility and trading energy that has been declining since October last year.

Stock Market is Rotating Frenetically, Crypto Left on the Sidelines

Steve Erlic: The Mag 7 continues to struggle, but AI stocks are surging. We're seeing a rotation towards small-cap cyclical stocks like the Russell 2000. What does this mean for risk sentiment? How does it affect your view on the crypto market?

Andy Baehr: This reminds me of crypto's performance in Q2. While Q2 was bad, smaller-cap crypto tokens actually outperformed BTC, ETH, and SOL. Even XRP was rising, which was quite astonishing.

At CoinDesk, I worked on the CoinDesk 80 index, covering tokens ranked 21 to 100 by market cap. In any healthy or even neutral market condition, you should see large-cap tokens outperform small-caps because the market's collective attention focuses on those more liquid, larger names. This is a reliable indicator of a normal market. In Q2, we saw the opposite: small-caps fell less than large-caps. This suggests capital was flowing out of the main assets—from ETFs, perpetual swap markets, spot markets, and DAT treasury companies. This could be a sign of capitulation to some extent at the end of Q2.

As for the stock market rotation, traders are chasing where the action is. Crypto lacks energy partly because other sectors have more dazzling opportunities like the SpaceX IPO, Anthropic, OpenAI. Capital is flowing out of crypto ETFs to grab these opportunities.

Steve Erlic: So from a trading desk perspective, how is smart money positioning now? Who are the structural buyers? ETF capital is not permanent capital, as proven over the past eight weeks. Stablecoin supply has decreased by about $10 billion since May, the largest contraction since the Terra/Luna collapse. DAT treasury companies are not in the buyer camp either. Strategy just sold nearly $500 million via an ATM without buying any BTC, holding the cash for preferred dividends. Metaplanet is similar.

Andy Baehr: We are bullish on DATs; they can indeed help complete the puzzle of the digital asset market: a treasury focused on a single digital asset combined with native skills in managing that asset. Your company and other successful DATs offer equity investors an interesting way to gain exposure to digital assets with additional features.

But what role did DATs play in last year's perfect rally? They weren't the first in. The textbook progression of last year's rally was: Step one, an ETH short squeeze, where a concentrated long-BTC, short-ETH hedge fund position started to unwind. Step two, crypto-native traders, seeing the trend form, poured into spot and perpetual swaps. Step three, in May-June 2025, ETF inflows turned positive, and even ETH ETF inflows surpassed BTC, which was quite stunning at the time. Then the passage of the GENIUS Act added further fuel to ETH, as so many stablecoins rely on the Ethereum network.

DATs should be buyers that join later, in the middle phase of a rally. It takes time for shareholder sentiment to transmit; a rising stock price creates more momentum for token purchases. They are structural, more permanent holders, unlike the more short-sighted ETF holders.

The Most Direct Signal: Watch DeFi Lending Rates

Steve Erlic: Have you seen any specific signals changing? Like put/call ratios, DeFi rates recovering?

Andy Baehr: At CoinDesk, I spent a lot of time looking at Aave rates. We published a daily rate based on Aave. In the month after the presidential election last November, these rates surged to over 20%. Now? They're around the risk-free rate, SOFR to one-year Treasury yields around 3.75% to 4.1%. There's no credit spread in DeFi money markets, indicating no one is in a hurry to borrow and lever up.

The most interesting part is to imagine a scenario: Warsh wakes up one morning, has an extra-strong coffee, feels good, and announces a surprise rate cut. Asset prices would rise, Bitcoin would rise. Then people would flock to Aave to borrow. Because these are supply-and-demand priced pools, Aave's rates, every Vault on Morpho, all lending pools on Gauntlet, Stakehouse, Beta, Concrete—their rates would spike instantly. People would be eager to add leverage.

Leverage is what truly drives prices higher. It can push prices to levels that might trigger ETF inflows, trigger DAT accumulation, or trigger long-term holders to enter. But until then, if you see DeFi rates hovering around the risk-free rate, that's low energy.

This is a very easy signal to monitor. These rate models are simple linear functions of supply and demand. More supply means lower rates; less demand means lower rates. When a massive amount of supply floods into these platforms saying 'give me any yield at all,' rates naturally hit their lowest levels.

DeFi's Fixed-Income Market is Quietly Taking Shape

Steve Erlic: You briefly mentioned new on-chain fixed-income products and Vaults. How are traders using these now? How should a regular investor gauge market energy through DeFi rates?

Andy Baehr: Think about how most people interact with crypto assets. Buying and selling tokens, trading perpetual swaps or options—these are asset-based activities, feeling more like stocks or commodities in the traditional world. These models aren't very suitable for creating a fixed-income market, a money market, or building a yield curve parallel to the traditional world.

DeFi is slowly building fixed-income solutions. There's no central bank, only supply and demand. DeFi money markets don't need large institutions to influence the next day's SOFR rate through overnight repos; it's just people trading instantly. These activities are now clustering, allowing us to see approximately where stablecoin lending rates should be.

Vaults are an excellent wrapper. Managers identify various lending pools, combine them into a portfolio, and this portfolio issues a token representing ownership or yield rights. Essentially, it's a money market fund. Of course, it's not a fund, not a security, and mostly unregulated. But it's 24/7 and globally accessible. As long as people do their homework and know what they're participating in, this is a highly efficient product.

From our perspective as asset managers, the role of the Vault manager carries a fiduciary-like responsibility: being accountable for results and providing disclosures to Vault holders. This is how I see it through my CFA principles and values, regardless of legal requirements. Money market funds are