GSR Asset Management Head: To Determine If This Rally Is Real, Just Watch One Number on Aave

Compiled & Edited by: Shenchao TechFlow

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

Host: Steve Erlic, Head of Research at Sharplink

Podcast Source: Bits & Bips (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 whose revenue depends on market trading volume and volatility. Its asset management division recently launched the Core3 ETF (BESO) holding BTC/ETH/SOL. The guest discusses the overall market trend and does not recommend any single asset.

Key Takeaways

Andy Baehr previously led product and research at CoinDesk Indices, held leadership roles in derivatives at Credit Suisse, BNP Paribas, Morgan Stanley, and Deutsche Bank, and now manages the asset management business at GSR, one of the world's largest crypto market makers. His framework for gauging market sentiment is straightforward: 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. Every 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 a "Fed hawkish peak." The most direct indicator: to see if last week's rally triggered by the CPI drop can sustain, just look at the USDC borrowing rate on Aave. It's currently around 3.75%, roughly the same as U.S. Treasury yields. That number says it all about the current low energy levels.

Highlights and Key Insights

What is a "Fed Solstice"

• "We haven't really seen the hawkish peak since 2022. Back then, the Fed aggressively raised rates to absorb post-pandemic fiscal stimulus, making it tough for both crypto assets and stocks because we didn't know how high rates would go."
• "Imagine a 'Fed Solstice'—that moment when we collectively feel, 'Okay, we know where the rate hikes will end.' Before that, it's hard to believe any rally can last."
• "Once we cross that peak and can see the view on 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 entire crypto market is derivatives trading, with only a quarter to a third being spot. Derivatives are incredibly important in determining price direction."
• "Last year's perfect rally had three phases: first, an ETH short squeeze; second, crypto-native traders flooded into spot and perpetual contracts as a trend formed; third, ETF inflows turned positive, and by May-June, ETH ETF inflows even surpassed BTC."
• "If a rally doesn't attract new layers of buyers, it's just a single-stage booster rocket. It burns out and falls back down."

Focus on DeFi Rates, Not Just Charts

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

DAT Treasury Companies Temporarily Absent

• "Strategy just sold nearly $500 million in stock via an ATM and didn't buy a single Bitcoin. They're holding the cash to pay preferred stock dividends."
• "DATs are buyers that typically join in the middle of a rally because it takes time for shareholder sentiment to transmit. But ETF money isn't permanent capital, as the past eight weeks have proven."

CLARITY Act: From 75% to Under 40%

• "The longer something is delayed, the lower the probability it gets done. We now need almost zero disruptions and a strong tailwind to complete it within just three weeks."
• "The probability on Polymarket has linearly dropped from 75% in May to under 40% now. Every day that passes without passage is a wasted day."
• "The ethics clause issue, in my view, is a 'delicious political snack' that Democrats want to take home. The disclosure of the president's family profiting from digital assets adds fuel to the fire."
• "But if it does pass, the market will treat it as a surprise. Surprise is one of the most powerful emotions driving price swings. It's hard to imagine the market wouldn't rally on such news."

The Authenticity of the Rally: Don't Just Watch CPI

Steve Erlic: June CPI was 3.5% year-over-year, and core CPI was flat month-over-month for the first time in five years. This was the most direct trigger for the current rally. But many reasons for the CPI drop seem one-off and may not repeat next month. Kevin Warsh said in his congressional testimony that 'inflation is a choice,' hinting he could remain hawkish. How do you view 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 the end of Q1. Ambivalence doesn't mean the market doesn't care about what it's doing. The market can show seemingly meaningful impulsive rallies, you might even see a bit of energy return in the perpetuals market, and then the rally quickly dissipates, leading to liquidations and a return to square one.

Bitcoin around the Consensus conference in spring surged from the high 70,000s to over 80,000, then got slammed down to around 61,000, near the cost of production line. This process actually brought some energy back to the market, but we're still in this ambivalent phase.

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

Zooming out, we are in an environment where we don't know where the "hawkish peak" is. A similar situation occurred before 2022 when the Fed aggressively raised rates to absorb post-pandemic fiscal stimulus, making it tough for crypto assets and stocks. Why? Because we didn't know where the hawkish top was.

Imagine a "Fed Solstice." That moment when we collectively feel comfortable and know where rate hikes will end. We have a new Fed Chair whom people are not yet familiar with, but 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 reliably last.

Steve Erlic: What's your take on Warsh as Fed Chair? He doesn't want to give 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 letters in his inaugural statement, stating he won't try to appease the market or overly inform it. This is a brand new relationship with the world and the Fed Chair.

His situation isn't easy either. Energy prices have calmed down for now, but geopolitical tensions could cause them to spike again very quickly. People are largely uncertain about what will happen and are simply pricing expectations into interest rate futures. Whether it's sooner or later, by how much, rate hikes will come, and we don't know the endpoint.

For crypto, it ultimately boils down to two variables: inflation expectations and nominal interest rate expectations. In 2022, nominal rates accelerated upward, directly breaking through inflation expectations, which was very tough for Bitcoin because expected real rates were rising. When expected real rates become better understood, a more favorable macro backdrop for Bitcoin will form. More practically, it will give people a clearer picture of fiat financing costs, allowing more leverage to flow into the crypto system. The crypto market desperately needs leverage to restore the volatility and trading energy that have been declining since last October.

Stock Market Rotating Wildly, Crypto Left on the Sidelines

Steve Erlic: The Mag 7 continue to struggle, but AI stocks are surging. We're seeing 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 crypto's performance in Q2. Even though Q2 was bad, smaller crypto tokens actually outperformed BTC, ETH, and SOL. Even XRP was rising, which was quite remarkable.

I worked on the CoinDesk 80 Index at CoinDesk, covering mid to small-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 market's collective attention focuses on more liquid, larger names. This is a reliable indicator of a normal market. Q2 showed the opposite: small-cap coins fell less than large-caps. This suggests capital was flowing out of the primary assets in ETFs, perpetuals, spot markets, and DAT treasury companies. This could be a capitulation signal of some sort from the end of Q2.

As for the rotation in the stock market, traders are chasing where the action is. Crypto lacks energy also because other sectors have more dazzling things—SpaceX IPO, Anthropic, OpenAI—capital is flowing out of crypto ETFs to chase these opportunities.

Steve Erlic: From a trading desk perspective, how is smart money positioning itself now? Who are the structural buyers? ETF capital is not permanent, as the past eight weeks have shown. Stablecoin supply has decreased by about $10 billion since May, the largest contraction since the Terra/Luna collapse. DAT treasury companies are also not in the buyer camp. Strategy just sold nearly $500 million via ATM, didn't buy a single BTC, and is holding the cash to pay preferred stock 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 local expertise in managing that asset. Your company and other well-executed DATs offer stock investors an interesting way to gain exposure to digital assets with additional characteristics.

But what role did DATs play in last year's perfect rally? They weren't the first to enter. The textbook progression of last year's rally was: First, an ETH short squeeze, as a concentrated hedge fund position long BTC and short ETH began to unwind. Second, crypto-native traders saw the trend forming and flooded into spot and perpetuals. Third, in May-June 2025, ETF inflows reversed to net positive, and ETH ETF inflows even surpassed BTC, which was stunning at the time. Then the passage of the GENIUS Act added fuel to ETH's fire because so many stablecoins depend on the Ethereum network.

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

The Most Direct Signal: Go Watch DeFi Lending Rates

Steve Erlic: Have you seen any specific signals changing? Like the put/call ratio, or DeFi rates picking up?

Andy Baehr: When I was at CoinDesk, I spent a lot of time looking at Aave's rates. We even published a daily rate based on Aave. In the month following the presidential election last November, these rates spiked above 20%. Now? They are around the risk-free rate, from SOFR to one-year Treasury yields, roughly 3.75% to 4.1%. DeFi has no credit spread over the money market, indicating no one is in a rush to borrow for leverage.

The most interesting part is to imagine a scenario: Warsh has an extra strong coffee one morning, feels good, and announces a surprise rate cut. Asset prices will rise, Bitcoin will rise. Then people will rush to borrow on Aave. Because it's a supply-and-demand driven pool, the rates on Aave, every vault on Morpho, Gauntlet, Stakehouse, Beta, Concrete—all lending pool rates will spike instantly. People will be eager to add leverage.

Leverage is what truly pushes prices higher. It pushes them to levels that might trigger ETF inflows, potentially trigger DAT accumulation, potentially 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. The more supply coming in, the lower the rate; the less demand, the lower the rate. When a massive amount of supply floods these platforms saying, "Give me any yield," the rate naturally sits at the bottom.

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 things now? How should a regular investor use DeFi rates to gauge market energy?

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

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

Vaults are an excellent wrapper. Managers identify various lending pools, put them into a portfolio, and that 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, mostly unregulated. But it's 24/7, globally accessible. As long as people do their homework and know what they're participating in, this is a very efficient product.

From our perspective as asset managers, the role of the vault manager carries responsibilities similar to a fiduciary: they are accountable