Andy Baehr, managing director of asset management at GSR, said the clearest way to tell whether the latest crypto rebound is real is to watch the USDC borrowing rate on Aave. If that number stays pinned near US risk-free yields, he said, the market is still running with very little leverage demand.
Baehr made the comments on Bits & Bips, a podcast under Unchained, in an episode released on July 17, 2026. The host was Steve Erlic, head of research at Sharplink. A disclosure attached to the episode said GSR, one of the world’s largest crypto market makers, depends on trading volumes and volatility for revenue, and that its asset management arm recently launched the Core3 ETF (BESO), which holds BTC, ETH, and SOL. Baehr’s remarks were framed as a discussion of the broader market rather than a recommendation on any single asset.
A market still closer to ambivalence than conviction
Baehr said he uses a simple spectrum to assess crypto market conditions. On one end is “ambivalence.” On the other is “conviction.” Right now, he said, crypto still sits much closer to the ambivalent side.
That does not mean the market is dead. His point was different: markets in this state can still produce rallies that look credible for a short stretch. Perpetual futures may show a brief pickup in activity. Then the move fades, liquidations hit, and prices slide back toward where they started.
He pointed to Bitcoin’s move around the Consensus conference in the spring, when BTC climbed from roughly 79,000 to above 80,000 before dropping to about 61,000, near production-cost levels. That decline brought some energy back into the market, he said, but not enough to move the broader setup out of ambivalence.
The opposite condition, conviction, is when traders can reasonably trust that a rally will keep going and develop into a different momentum cycle. That leaves, in his words, one practical question: is this just another single-stage rocket that burns out after lift-off, or is the market finally starting to grow legs?
The market has not reached a “Fed solstice”
Baehr tied that uncertainty to monetary policy. Since 2022, he said, markets have not really seen a true peak in hawkishness. During the post-pandemic period, the Federal Reserve pushed rates sharply higher to absorb the effects of fiscal stimulus, and both crypto and equities struggled because investors did not know where the tightening cycle would end.
He used the phrase “Fed solstice” to describe the point when the market collectively feels comfortable that it can see where rate hikes stop. Before that, he said, it is hard to trust any rally. Once the market gets over that peak and can see down the other side, sentiment can shift very fast.
Asked about Fed Chair Kevin Warsh, Baehr said Warsh does not come across as someone trying to soothe markets. He said Warsh emphasized independence in bold in his inaugural statement, does not want to offer forward guidance, and does not publish a dot plot. Instead, he wants the Fed to react to data.
Baehr added that Warsh is operating in a difficult environment. Energy prices have calmed for now, but geopolitics could push them higher again quickly. Markets, he said, are mainly pricing expectations through rate futures, but the endpoint remains unclear, whether hikes come sooner or later and whether they are larger or smaller.
For crypto, he reduced the macro picture to two variables: inflation expectations and nominal rate expectations. In 2022, nominal rates rose fast enough to break above inflation expectations, which pushed expected real rates higher and made conditions especially hard for Bitcoin. A more stable and understandable path for expected real rates, he said, would offer friendlier macro support for BTC and would also give market participants more clarity on fiat funding costs. That matters because the crypto market needs leverage to rebuild the volatility and trading energy that, in his view, have been falling since last October.
Why Aave’s USDC rate matters more than the chart
Erlic noted that June CPI came in at 3.5% year over year and that core CPI was flat month over month for the first time in five years. He described that as the most direct trigger for the current rebound, while also warning that some of the reasons for lower inflation looked one-off and might not repeat next month. He also mentioned Warsh’s comment at a congressional hearing that “inflation is a choice,” which suggested he could remain hawkish.
Baehr’s answer was straightforward. To test whether the CPI-driven rally can last, he said, look at the USDC borrowing rate on Aave.
He said that while at CoinDesk, where he previously led product and research at CoinDesk Indices, he spent a great deal of time studying Aave rates and helped publish a daily annualized rate based on Aave data. In the month after the presidential election last November, those rates jumped above 20%. Today, by contrast, they sit around the risk-free rate, roughly in the 3.75% to 4.1% range, in line with SOFR and one-year Treasury yields.
That matters because DeFi money markets do not carry a credit spread in the same way traditional markets do. If borrowing costs are sitting right on top of risk-free yields, Baehr said, it means nobody is willing to pay a premium to borrow and lever up. For him, that is the clearest sign of a low-energy market.
He sketched out a hypothetical. If Warsh woke up one morning, had what Baehr called “a really strong cup of coffee,” and surprised the market with a rate cut, asset prices would move higher and Bitcoin would rise. Traders would then rush to Aave to borrow. Because these pools are priced directly through supply and demand, rates on Aave, every Morpho vault, and lending pools across Gauntlet, Stakehouse, Beta, and Concrete would spike almost immediately. That is when, in his telling, the market would be showing genuine energy.
Leverage is what carries prices higher, he said. It can push the market far enough to start pulling in ETF inflows, prompt more buying from digital asset treasury companies, and eventually attract long-term holders. Before that happens, though, DeFi rates parked near risk-free levels are a sign that the rebound still lacks force.
He also stressed how simple this signal is to monitor. Lending-rate models in DeFi are little more than supply-and-demand functions. More supply pushes rates lower. Weak demand does the same. When a large amount of capital enters these platforms saying it will take almost any yield, rates naturally fall toward the bottom of the range.
A durable rally needs multiple layers of buying
Baehr said about two-thirds to three-quarters of all crypto trading is in derivatives, while only one-quarter to one-third is in spot markets. That makes derivatives central to price formation.
For that reason, he does not judge a rally only by the fact that prices are moving up. He looks for a sequence of follow-through buyers. Without that layering effect, he said, a rally is only a one-stage rocket.
He broke last year’s “perfect rally” into three phases.
- First came an ETH short squeeze, driven by the unwind of a concentrated hedge fund trade that was long BTC and short ETH.
- Second, crypto-native traders saw the trend developing and piled into spot and perpetual futures.
- Third, ETF flows turned positive. By May and June 2025, inflows into ETH ETFs had even surpassed those into BTC ETFs, which he described as striking. He added that passage of the GENIUS Act gave ETH another lift because so many stablecoins depend on the Ethereum network.
Without fresh buying joining in stage by stage, he said, rallies do not hold.
Digital asset treasury companies are not the first buyers
Erlic argued that the market is still short on structural buyers. ETF money is not permanent capital, he said, and the past eight weeks have shown that. Stablecoin supply has fallen by about $10 billion since May, the largest contraction since the Terra/Luna collapse. Digital asset treasury, or DAT, companies are also not active buyers right now. He cited Strategy, which recently sold nearly $500 million of stock through its ATM program without buying any Bitcoin, keeping the proceeds to pay preferred dividends. He said Metaplanet looked similar.
Baehr said he is constructive on DAT companies over the longer term. In his view, they fill an important gap in market structure by combining treasury exposure to a single digital asset with in-house expertise around that asset, creating a different kind of listed-market exposure for equity investors.
Still, he does not see DAT firms as the first wave of demand in a rally. Looking back at last year, they were not the earliest buyers. Instead, he said, they are more likely to join in the middle of a move, after shareholder sentiment has had time to feed through and higher stock prices create more momentum for token accumulation.
That, in his view, makes them more structural and more permanent than ETF holders, who can behave in a much shorter-term way.
Equities are rotating while crypto is left without the spotlight
Erlic also asked what the broader equity tape means for crypto. The Magnificent Seven have continued to struggle, he said, while AI names have surged and money has rotated toward smaller cyclical stocks such as those in the Russell 2000.
Baehr said that reminded him of crypto’s second-quarter price action. Q2 was weak overall, but smaller crypto tokens still outperformed BTC, ETH, and SOL on a relative basis, and even XRP was rising. He called that surprising.
He pointed to his earlier work on the CoinDesk 80 index, which tracks mid-cap tokens ranked 21 through 100 by market value. In a healthy market, or even a neutral one, large-cap tokens should outperform smaller names because attention tends to gather around the biggest and most liquid assets. That is what normal market behavior looks like, he said.
Q2 showed the opposite. Smaller tokens fell less than large tokens. Baehr said that suggested capital was leaving the core assets typically favored in ETFs, perpetuals, spot markets, and DAT strategies. He added that it may also have marked a kind of capitulation signal near the end of the quarter.
As for the rotation in equities, his explanation was simple: traders chase action. Crypto is short on energy partly because other areas of the market offer brighter opportunities, including SpaceX IPO-related interest, Anthropic, and OpenAI. In that setup, capital can leave crypto ETFs to pursue those trades.
DeFi fixed income is starting to take shape
Later in the conversation, the discussion turned to on-chain fixed-income products and vaults. Erlic asked how traders are using them and how ordinary investors should think about DeFi rates as a barometer for market energy.
Baehr said most people still engage with crypto through token trading, perpetual futures, or options. Those are asset-based activities that resemble equities or commodities more than they resemble a money market or a yield curve.
DeFi, in his view, is slowly building that missing fixed-income layer. There is no central bank in these markets, only supply and demand. DeFi money markets do not depend on large institutions using overnight repo to influence the next day’s SOFR. Activity happens directly and continuously on-chain. As that activity clusters and grows, markets begin to reveal where stablecoin borrowing rates should roughly sit.
He called vaults a strong packaging format. Managers identify lending pools, combine them into a portfolio, and issue a token representing ownership or rights to the yield. Economically, he said, that is very close to a money market fund. At the same time, he was careful with the distinction: it is not a fund, not a security, and for the most part not regulated. It is, however, open 24/7 and broadly accessible around the world.
As long as users understand what they are participating in, he said, these products can be highly efficient. From the perspective of an asset manager, he added, vault managers effectively take on a fiduciary-like role. They should be accountable for outcomes and should disclose information to vault holders. He framed that as a matter of CFA standards and personal values, whether or not the law explicitly requires it.
He added that money market funds in traditional finance are securities, and that the growth of this on-chain fixed-income market will likely come with a reckoning over what standards managers should be expected to meet.
CLARITY Act as the overlooked catalyst
The third signal Baehr highlighted was the CLARITY Act.
Erlic said that while they were recording, the White House was holding a meeting involving the president, chief of staff Susie Wilds, several Republican senators involved in the negotiations, and Blockchain Association CEO Kristen Smith. The goal was to try to finalize an agreement around an ethics provision, seen as key to winning Democratic support. A revised Senate bill, he said, could emerge at any moment. If it passed before the August 7 deadline, would that act as a shot in the arm for markets?
Baehr said legislation matters a great deal over the long term. But he also said that the longer something drags on, the lower the odds that it gets done. On Polymarket, the probability has fallen from 75% in May to below 40% now, almost in a straight line. Every day that passes without passage, he said, is a lost day.
On the ethics provision itself, Baehr said he found it hard not to see it as a political item some Democrats wanted to take home with them. He also pointed to disclosures that the president’s family had made more than $1 billion from digital assets, saying that gave Democrats an obvious target.
Even so, he said the market would likely treat passage as a surprise if it happened. This is not something that, in his view, is so fully expected that markets would shrug it off. Surprise, he said, is one of the strongest emotional drivers of price moves in either direction. For that reason, he said it was hard to imagine the market not moving higher if the bill passed.
The first test is not price but willingness to borrow
Put together, Baehr’s framework rests on three signals: whether DeFi lending rates rise meaningfully above risk-free levels, whether the CLARITY Act delivers an upside surprise, and whether markets begin to form consensus around a peak in Fed hawkishness.
Of the three, the most immediate one remains Aave’s USDC borrowing rate. Last November, after the presidential election, that market saw rates rise above 20%. Now the number sits around 3.75%, roughly in line with Treasury yields. For Baehr, that number says almost everything about how much real energy the market has right now.