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

Transcript

I don't think it's priced in right now. And so surprise is one of the most powerful I guess emotions that can help fuel either up or down moves in prices. So, uh, passage would be a surprise. And I think it would be hard to imagine a market that doesn't experience some some lift. All right. Hi everyone. Welcome to another episode of Bits and Bips [music] the Interview. Uh, my name is Steve Erlic. I'm the head of research at Sharplink and as always your host. and uh here today um to [music] talk about what's so far been a really great week. In fact, it's been crypto's best week in months. [music] And uh my guest today spends his days looking past u the price to the flows underneath it [music] and really understand uh we're going to try to answer one central question. Uh are

we should we buy in or is this going to be another kind of uh sort of relief bump? So uh but before we get into it uh as always just a little bit of housekeeping. Nothing that you see or hear on this program is should be considered investment or financial [music] advice for for full disclosures. Please see unchained crypto.com/bitsandbips. And also um and also just one other quick piece of housekeeping. Uh heads up, bits and bips has its own channels now separate from Unchained. So if you're not subscribed on the new dedicated channels, you're going to stop [music] seeing these episodes. Don't lose your regular dose of the sharpest takes in crypto. and subscribe to the [music] on the Bits and Bits channels on

X, YouTube, and your favorite podcast platforms right now so every episode keeps showing up in your feed. Um, now let's hear from one of our sponsors before I bring in our guest. >> This episode is brought to you by Cape, America's privacy first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location, and your data actually stay yours. Get 33% off 6 months at cape.co/unchained. Heads up everyone. We've now fully transitioned Bits andBips [music] to its new dedicated channels. So if you're not yet subscribed to the new Bits andB channels on X, YouTube, [music] Spotify, Apple Podcast, or wherever you

get your podcast, go there and subscribe now. For the next few weeks, we'll play segments of the full interviews on Unchained as a reminder. But for now, you'll only hear those short segments of bits and bips on Unchained. No more full episodes. You can get links to all of the dedicated channels with the full episodes at unchanged crypto.com/bits andbbits [music] spelled vips. Thanks again. [music] >> All right, welcome back. So I I am very pleased to bring in my guest today. Um repeat guest, friend of mine, Andy Bear.

He is the managing director of asset management at GSR. So welcome Andy. >> Great to see you again, Steve. >> Yeah. Um, good to have you here and and you're the perfect guest to have this week because as I said in my intro, in my opening, crypto has had its best week in in months. Um, people are feeling bullish. Bitcoin's u been uh pushing up against 65,000. ETH is starting to set its sights on 2,000 again. And it all really, I think, comes down to one number. Um, 3.5 3.5% uh specifically the June CPI. And uh it's it's it's down from the year-on-year uh rate of 4.2%.

And um and core has been flat um month over month for the first time in in five plus years as well. So so this is um 3.5% is not any number to write home about but at the same point and it's far off the the target of 2% but it's gone down and uh and there's been a bit of a relief rally. Uh that said, I think the question that I want to pose to you first and I'm sure everyone has been kind of weighing themselves is what to make of this because again it seems like there's a lot of reasons why um CPI went down seem to be one-offs. I I don't necessarily expect that to happen again when we get another reading next month.

And uh although it appears that sort of the the proclivity for a rate hike um during the next FOMC meeting next week could be off the table because of this. Um Kevin Worsh also said in congressional testimony that I I think his exact phrasing was inflation was a choice meaning that like he's still committed to being hawkish if if he needs to be. So what do you make of this? like what what um is it just as simple as a relief rally or are there bigger trends underlying that are worth pointing out here?

>> Yeah, there's a it's a great question. There's a lot to unpack there. I think um it feels especially given all of the ambivalence and that's that's the word that we've been using to kind of tag the market conditions um through most of the second quarter, even at the end of the first quarter. ambivalence, not meaning the market doesn't care what it's doing, but that it will have these pulses of what appear to be, you know, well-fueled rallies. Uh you even start to see a little bit of energy returning into the perpetuals market and then suddenly that rally kind of dissipates very quickly and then there's a liquidation and we're, you know, back to where we started. And that happened uh with with Bitcoin in the high 70s uh getting through into the low 80s around the time

of uh of consensus and the springtime. Um and then we had that kind of you know shunt down to the low 60s down to sort of the production level of Bitcoin. Um which which actually did bring some energy back to the market. Um but so but we're still in this kind of ambivalent phase right where I guess the opposite of ambivalence is conviction where you can reliably depend on these rallies to continue and um to really create a a different momentum cycle. So I I guess you know to phrase your question in another way is this another ambivalent sort of single booster rocket rally where there's no you know rocket to to follow once the booster rocket is expended uh or is this where we begin to

get to get legs. Um I think you know uh zooming out the the best the best thing that feels comfortable to say is that we're in an environment where we don't know where peak hawkishness is in terms of market sentiment. Right. It hasn't been really since like 2022 preft when the Fed hiked very aggressively to sort of burn off uh the fiscal stimulus after COVID, right? And and of course crypto assets were very challenged as were equities in that environment. Why?

Because we didn't know what peak hawkishness was going to be, right? So think of it seasonality, right? We don't know when the Fed solstice is going to be that moment at which we kind of really collectively feel comfortable that we know when the hikes are going to end. And it doesn't help, of course, that we have a new Fed chair and one who, you know, we don't really we're not that familiar with yet, but certainly one who doesn't seem um very comfortable or very eager to sort of, you know, kind of soothe us, right? So, uh, I think I think until you really collectively globally reach this kind of idea of this what I'm thinking of as the Fed solstice of of peak hawkishness and you can sort of see over the crest of the hill to

what might unfold. Beyond that, it's very difficult to be to feel like any kind of rally is going to be uh reliably sustainable. >> Yeah. And there's a lot to to dive into on that answer. So, let's try to break it down piece by piece. Um, one just quick answer or one quick question to follow up because I don't think you and I have really had a chance to speak about Kevin Walsh since he was confirmed at Fed chair. But I I mean he doesn't want to give out forward guidance in in sort of the same spirit as as Ben Bernani or Jerome Pal uh etc. And he's not uh issuing his own his own dot plot.

I mean, he really wants the Fed to be, I guess, um, I guess this is praiseworthy, I mean, reactive to the data. And I I I have some sympathy for the Fed giving this forward guidance because I think in some ways it was then stepping into a void that was advocated by Congress, but that that's that's a whole another story. Um but I mean what do you make of him as a Fed chair in in a moment like this where on the one hand uh I guess it could be somewhat soothing to markets that he is sort of striking his independence that whole inflation is a choice phrase is one that I think um history books will be written history books 10 to 50 100 years from now. Uh but at the same point he wants a president he has a president that wants u lower rates and um and this inflation

print um even if it is I guess quote unquote the reasons for the decline are oneoff it could lead to some uh some competing priorities. So so what do you make of them? I'm I'm I'm far from the greatest uh uh or the most um skilled bed watcher or you know or bed whisperer, but pretty clear that you don't have a synopantic bed chair, right? You you have you have one who is declared um in in bold print, right? Um that he's going to be independent and not necessarily um aim to soothe the market nor overinform the market even if he were. Right? It's a new relationship with the world and the Fed chair and

that's always um a special time, right? Um he also has a very um you know not not the simplest set of circumstances to work with here when you've seen the girration of things like energy prices which are now have now subdued but could reinflate very quickly given the geopolitical situation. Um so uh you know I don't know right and I think few people feel very comfortable except that they have a sense um and and it's priced into you know into interest rate futures and you know that that there's very likely hikes coming up whether they're sooner or later whether we can uh delay them or how many there will be we don't know but we know that we're in this uncertain you know kind of heightening

cycle um and we don't know where it ends and that's that's where I come back to when we when we really collect ly get to this comfort point of being okay, we've reached peak hawkishness. The sentiment will will um I think the sentiment can shift very quickly. Let's remember right this all comes down to two things with respect to Bitcoin in particular. Uh Bitcoin is looking at inflation expectations and it's looking at nominal rate expectations, right? And uh just like in 2022 when the nominal rates kind of accelerated so quickly that they just blasted past inflation expectations that was very difficult for Bitcoin right because that that kind of expected real rate right was uh was going higher. When

we get to the point where expected real rates can be understood better, that forms, I think, a better macroeconomic support for Bitcoin, but also just more generally, more practically, it will form a better sense of what financing is going to be like in fiat terms >> um to basically provide more leverage into the crypto system, which it desperately needs to regain some of the volatility and energy volume uh that is that has declined since since last October. Yeah. >> So, it all it all really comes down to rates. We I have a lot more ideas about rates that I hope we can cover today, but but in the zoom out phase and I really, you know, looking at crypto and

anything more condensed than quarters for me is is is is very very difficult. But um I I do think that all of that adds up to learning and collectively getting to that point of max um Max hawkish reaching that summit of Max hawkish sentiment and seeing you know seeing the other side of the hill. >> Yeah. And I guess within the spirit of of that max hawkishness and trying to I guess maybe read some of the tea leaves in the equities markets. Uh I I am I'd love to get your thoughts on just sort of some of the rotations that I'm seeing and I'm sure you are too. Um sort of the the mag seven stocks continue to to struggle but u the AI ones are going

gang buster and we're seeing a real rotation into um uh like smaller businesses more more cyclical stocks like the Russell 2000 um is is doing extremely well. uh what do you like what do you make of that and um and how does that sort of like impact your view of risk sentiment right now? Uh and and this will kind of lead into our discussion about crypto and sort of like how we're seeing some of those larger assets divide. >> I do think it's quite curious and and and you know by by professional choice I'll spend more time looking at at I think you know crypto sectors and crypto um I guess uh uh uh market cap sizes than than equities. But you can't help

notice this kind of uh mag seven um volatility versus other sectors which seem to catch a lot of energy. And you just wonder whether that's just um and I I think you know even the last time we were speaking on this program right this this kind of topic was coming up about about unanticipated equity rotation. Um it actually makes me think about how crypto performed in Q2 where as bad as it was, right? Uh you had actual outperformance of small cap crypto relative to Bitcoin, Ether, Salana, right? XRP, which is startling, right?

Um my in my old job, we built this index called the Coindesk 80, which is which is kind of a mid and small cap index that starts at sort of token number 21 and goes down to 100. um in any kind of healthy or even stable neutral market condition, you can rely on large cap cryptos to sort of pull away from small cap crypto. It just means that there's a you know a collective attention on those larger liquid names. Um and over time that's a that's a pretty reliable indicator of a normal market. So to see in such a uh you know you might have situations in a sudden sudden uptrend of small caps gaining a lot of energy and and briefly outpacing kind of lower

volatility Bitcoin, Ether, Salana, but but normally over time you're going to have those those sort of mega caps sort of pull away. Uh so in Q2 to see to see that uh that Coindesk aiding index kind of was down but but but was down less than Ether, right? it was down less than Bitcoin is really kind of stunning and it just showed how much um evacuation there was from those majors in ETFs uh in per markets in spot markets in digital asset treasuries like like your own and you know to me is that capitulation level towards the end of Q2 perhaps uh but is certainly a sign that uh that there was an an evacuation that

that happened over that longer period of time. Now coming back, yeah, anecdotally, I'll see a down S&P 500 and I'll see, you know, Apple, Amazon, Microsoft up and vice versa. Um, uh, I, you know, what to make of that? I think I think I would guess that traders are going where they see the actions going to be which has been um you know the biggest I guess rationale for why crypto has less energy than some of these other kind of sectors or subsectors right now. >> Yeah. And I I think that leads into the discussion um that I want to have next with you which really kind of touches on one of your first topics or or first points you made conviction. Uh like what like where do you see conviction in in

the marketplace? Uh clearly clear we clearly were able to see conviction um the last couple years in the mag 7. Um we are seeing conviction right now when it comes to AI stocks and anything adjacent to the AI economy. I mean and one does it need to look any further than I mean I mean aside from just the market performance of crypto stocks. I mean, money flowing out of of crypto ETFs so they can have more dry powder to get in on the SpaceX IPO and then the anthropic one and open AIS that are probably coming later this year and and buying into um uh every every stock um in that market under the sun and and that and to your point about some the rotations into the cyclicals etc. it

like and the idea of traders just focused more on volatility but not conviction from from retail from like large buy and hold institutions. Um that certainly rings true to me and I think that's a good segue into the crypto discussion because again terrific week uh I mean um ETH is up big, Bitcoin's up big on the week on the month. Uh finally we're seeing some green shoots but uh each time this has happened especially during this crypto winter it's fallen back. I mean, there was a brief relief rally, ironically, during the Iran conflict when it was in its heyday a few months ago. Um, but that had a little more, I think, to do to perhaps gold um reversing back to the mean and maybe some crypto uh u picking up a little bit of that slack, etc. And I am unsure if

we're going to really see for a real sustained uptrend like we have to be able to identify like where's the buying pressure coming from? Is it sustained? uh like are there real almost like non-m macro factors that are sort of unique to crypto that are going to help keep this going? >> Some evidence to me is is promising. I mean ETF flows and Bitcoin ETH both ended eight weeks of outflows with with positive inflows, but they've been whipsawing um this week. But in my opinion too, it's also hard to have this discussion without thinking about strategy where they sold almost 500 they tapped their ATM for almost $500 million and they didn't buy one Bitcoin with it.

they're just like stocking up their um their cash to um to make sure they have enough dividend payments to handle their preferred for the next couple of years. I mean, MetaPlan is the same way. I mean, we're seeing DATs uh go out of business. So, I mean, that's one huge structural buyer that is sitting on the sidelines, at least at least for now. So, I know that was a long preamble to me asking you a question, but I' I'd love for you to kind of react to what I just said and and what are you seeing especially as as you kind of monitor trading desks like like how how is the smart money positioning here?

>> Yeah, all good points and you know we uh at GSR and and and within my vertical in GSR and asset management we're you know we're just to comment on DATs first. I think we're we're we're prot and that we definitely see um how they can help complete the market for um the combination of having a treasury that's focused on one digital asset plus native skill in trying to um make that put that asset to work. I think you know that takes a pretty unique skill set and u your firm and and and other digital asset treasuries who do this well provide to us equity investors um we

think or or have the potential to provide uh an interesting way uh to experience a digital asset allocation that has these kind of extra features. Um strategy uh famously does this mostly through financial engineering. Um there are other you know there are other ways to do it some of which are more cryptonative and if they're done skillfully um they can be done in a way which meets investor objectives and uh uh if they're not then they'll be rooted out and investors will walk will vote with their feet uh from from uh from then on. um in terms of you know what what takes one of these kind of you know thin booster rocket rallies and actually like lets lets the vehicle continue to

achieve altitude and uh velocity. Um this the rally that we had last year I think was was your kind of p picture perfect model of a great rally and and and ether kind of led that rally in my in my view. It started with a very kind of concentrated long Bitcoin short Ether kind of hedge fund or active trader position that when it began to unwind, right, Ether kind of, you know, came out with a uh in a short squeeze. Um that was maybe step one, right? Uh step two is that uh crypton native people saw this happening saw a trend starting to form and piled in both in terms of um

spot but also in terms of per let's remember you know all of the crypto market is somewhere between 2/3 and 3/4 depending on when you measure derivatives and you know a quarter to a third in spots. So derivatives are fantastically important in uh in determining where prices move. Um and then once the spot per rally continued that was stage two and then stage three you started to see was probably around you know May June of 2025 ETF inflows even to the point where Ether inflows were higher than Bitcoin ETF inflows which was quite remarkable right especially since they were newer and and the relative size of the assets and then of course you know you had this

punctuation of the Genius Act being passed and so many stable coins rely on the Ethereum network to exist so you had this kind fundamental kind of extra boost. Um, but I I think I feel and I think that you'll be able to trust these rallies more when you see the new entrance, you know, like layers like, you know, layers of onion skin sort of start to participate. Um, it has to start with a catalyst for Ether. This this year's catalyst may be all of the fundamentals uh linked to the f the formation of all these kind of foundation spin-offs. it actually might be a narrative and and fundamental basis why Ether is outperforming in Q3 other

majors pretty pretty solidly, right? Um and then you want to see accumulation. You do need to have a little bit more volatility and energy and leverage in the market for that per layer to really kind of create some some lift. >> Yeah, that's what we've been missing, I think. >> Yeah. And um I didn't mean to interrupt, but where do you think that money comes from? Um like like who are those participants? Uh is it uh normal trading desks that perhaps have been sitting a little on the sidelines that that get back in because they have a conviction that they want to express? Uh we're talking right now the stable coin supply has dropped about uh 10 billion since May, which is not a a

massive number in a $300 billion plus market, but but it is it's not nothing. And it's the largest sort of drop since the Terral Luna collapse which is something that we all kind of remember too. So that that's dry powder that is that is going away. Uh so this all just kind of goes back to my one question like who are going to be those those structural buyers? Is it is it the DATs? Uh I mean for all the reasons that you and I just discussed I mean right now it's difficult with the vast majority of them trading it and NAV's below one it's dilutive for them to tap ATMs and issue additional common shares. doesn't mean they won't always they won't necessarily do it, but it does complicate things a little bit more. U we're not seeing any sort of government strategic reserve,

which I know is had been discussed for for a while. And um and and it it still seems that a lot of attention from like perhaps like the ETF buyers that would go into crypto is still going into AI, looking for some of those soft spots. maybe not the direct AI plays but now the adjacent ones that that perhaps have a little bit more room to catch up. So, >> I mean, all of this setup and and we're going to talk about clarity. Uh, I know you mentioned a few of the offshoots from the EF that have have come about and those are crypto specific, but um like what like if there are one or two people watching, listening like like one or two signs to suggest that like this is going to get some momentum.

>> What are you looking for? or is there anything interesting that you see come across your desk that makes you um sort of change your forecasting? >> We we look at it constantly. Um and I think uh actually you brought up an interesting point that that the DATs especially especially the DATs outside of outside of Bitcoin. I didn't mention them in that narrative about um that kind of very textbook rally of last year where you had constituent after constituent coming back in >> because dats at that point were were still a little bit new right you wouldn't you know you would think about traders then then you think about spot and per buyers on on centralized exchanges then you think about um the ETF flows starting to reverse and you

know etc etc but but DATs are are not would not only you know kind of slide in there as um as buyers who would um who I think would would participate sort of let's say in the middle of momentum right because their the shareholders would get excited and that would help you know create the I guess the um uh the policy momentum for more you know token purchases to happen um and that but but they're also holders that would be structural and and sort of more permanent right because >> ETF holders now famously right that's not permanent capital that's not permanent Not even a little bit, right?

Not even a little bit. >> And just the last eight weeks, it's it's very it's very impermanent. >> Correct. And that's I think that brings out another point when we talk about ETFs and and and multi-token ETFs. There was another uh there was another one that came to market today. And you know, those being investment products, we're we're still in this market where where you're dealing with traders. And I guess your question of who is it going to be who kind of really kind of gets the altitude of the of the uh of a rally going and creates more reliable momentum. Uh momentum traders um will pick up on things pretty quickly. But momentum signals now have been frustrated for so long that I think you know a mo a momentum signal and this is

exactly kind of what we're measuring with our kind of ambivalence and conviction kind of gauges right which we which we've used on um which we've used externally a few times you really need to see that a momentum um uh cycle is is in place once I think people feel that it's trustworthy and that there won't be enough Fed surprises es or geopolitical surprises um uh or or rather regular political surprises to ruin things. I think um I think it'll be game on, right? I think it can I think we can exit the ambivalence phase um as as meaningfully and assertively as we've entered into

it. Um but maybe that kind of uh consensus uh event type rally was the strongest of them that that you know felt like it was going to be strong enough but it wasn't. Um I think I think for the people listening who are just waiting to get in. It's you know I would almost rather um join a rally that you feel really has legs and be patient and be more comfortable not getting a bottom price but getting a more healthy momentum rally.

>> Yeah. Um so our quantitative signals that we use both for our ETF product and for our you know institutional um absolute return products uh they're they're certainly not solely momentum driven. There's there's a whole library of signals that we use but but a lot of a lot of those signals or at least some of the sections of signals are geared around this kind of you know how sustainable is this energy that's flowing into the market. So to sum it up in one word Mhm. >> It's all about energy.

>> Yeah, it's a good point. >> If if if there's enough energy, and this is where kind of the the the booster rocket kind of metaphor um feels very comfortable. If there's enough energy to create that altitude to get you into space, you'll be fine. But if there's not enough energy, you won't. Um and I like to measure energy in terms of um volumes of spot and derivatives. Uh, I like to watch funding rates. Uh, more recently, I've really started to like to watch DeFi rates >> because DeFi rates are an excellent kind of um, you know, leading signal of who needs leverage like who is who is borrowing money to go and buy stuff

>> and what are they telling you? I mean, have you seen anything in like changes in put call ratios, DeFi rates creeping up? >> I think it's simpler than that. I I I I look at in my in my old um seat I I spent a lot of time looking at a rates and and you know we had published this kind of sofa rate for a which which basically took which um compounded a rates into a daily rate um and published that and you just you these rates went over 20% the month after the president was elected and now they're right around where the risk-free rate is where the yield curve is out you know from sofur to one year. So they're all, you know, they're all around whatever 3 and 3/4 to to to 4.1%. So there's no

there's no um term where there's no credit spread basically for DeFi over over money markets and >> and it doesn't seem like people are anxious to lever up is what you're >> precisely right and and the most fascinating thing about that is right is is uh imagine a situation where WSH you know gets up and he has a particularly strong cup of coffee. He's feeling great. says, "You know what? I'm going to surp I'm going to do my first surprise and I'm going to I'm going to lower rates, right? Not going to happen, but let's pretend, right?" The market would love it. Asset prices would love it. Bitcoin price would most likely love it. And what would happen? People would go on a and start borrowing, right? And since those are supply demand pools, you

could see this situation where fiat rates go down and defy rates, you know, not only a but every vault on Morpho, every stakehouse vault, every gauntlet vault, everything on beta and concrete and all these platforms would would shoot up because there would be this uh acute rush to lever >> lever, >> right? and leverage whether you do it by per borrowing to to loop your you know to loop your your your spot holdings is really that's what's going to just kind of you know shoot prices up pretty high to the level where maybe okay that triggers some ETF inflows maybe that triggers some DAT purchases maybe that actually triggers some longerterm holders from getting involved and then you have a good uh a good market so but in the meantime if you're looking at

DeFi rates and they're kind of hover hovering around where you know sofur to one-year treasuries is. It's hard to see that mean that just means that supply is just pounding into these platforms to say give me any yield I can get. Right? Those those those interest rate models are just supply demand linear or stepwise linear functions. They're very very simple. The more supply the lower the yield uh the less demand, the lower the yield. So if you if you see these rates hovering around um risk-free, that's low energy.

>> Yeah. um a very easy thing for people to monitor and given all the new and exciting um fixed income products in the DeFi world. There's a very rich, you know, way to examine how these things uh are moving and changing. >> Gotcha. All right. Well, we have a lot more to talk about, but before we do, we need to take a quick break to hear from another one of our sponsors. >> If you hold crypto on your phone, your biggest vulnerability isn't your wallet, it's your carrier. AT&T, Verizon, and T-Mobile have been breached again and again, and SIM swaps are still one of the easiest ways for attackers to drain accounts. That's where Cape comes in.

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subscribed to the new Bits and Bips channels on X, YouTube, Spotify, Apple Podcasts, or wherever you get your podcasts, [music] go there and subscribe now. For the next few weeks, we'll play segments of the full interviews on Unchained as a reminder. But for now, you'll only hear those short segments of bits and bips on Unchained. No more full episodes. You can get links to all of the dedicated channels with the full episodes at unchainedcrypto.com/bitsandbips [music] spelled bits. Thanks again. >> All right, welcome back. So, I'm here with Andy Bear. And we were talking as we went to break, you were talking about one of the signals that you pay

attention to is is DeFi rates. If you started to see them ticking up, that gets the it's a signal that um people are looking to lever up again. Um there's bullishness in the marketplace. But right now, I mean, I think you were talking about a in particular, you're seeing a lot of uh lending pools operating at like the quote unquote risk-free rate, which suggests that there is not a lot of con not a lot of conviction, a lot of energy in the market. But then you also sort of tease us a little bit by talking about some of the uh the new fixed income products out there that are available on chain.

There's um more and and and more coming. And um and you also talked about vaults too, which is sort of the new hot thing in in in DeFi and I think a more sophisticated way to sort of engage in like algorithmic trading activities on on DeFi. So, I'd love for you to just kind of expand on where you were going a little bit more and uh and and talk about how some traders are using these products and and and then I guess how everyone should how people should read into what's happening there visav DeFi rates to to get a sense of where that conviction may stand and how that could change.

>> Yeah, for sure. Um, if you think about how most people interact with with crypto assets, most traders, right, I think around the world and and let's I mean it can be it can be retail or it can be small institutions, many will what you'll buy and sell a token, right? Um, on a centralized exchange or on a decentralized exchange on unis swap or something like that. Um, you'll interact with derivatives, right? you'll you'll trade per uh perpetual futures contracts or you might trade options somewhere. Um all the assetbased stuff, right? All the stuff that really feels like more like equities or commodities in the

traditional world. Um those models don't really lend themselves that well to trading uh to to creating a fixed income market, to creating a money market or to create a yield curve >> that's parallel to to what happens in the in the in the world uh in the traditional world. And of course that's critical, right? Um so much of that um you know real funding rates, borrowing rates, things like that are handled over the counter between bilaterally um across counterparties. There have been a number of attempts uh over many years.

Really fascinating projects and um gotten to know some of the uh the folks who who've tried to launch these in decentralized finance. But there's kind of you know there's no other side, right? there's there's no investor base. Uh there's no um kind of broad money market fund experience that you can have the same way that you would have with with your with your dollars or your other fiat currency. And that's starting to change a little bit. Um, and you know, unlike the centralized exchange world, right, the Binance, Coinbase, Crypto.com, Kraken kind of world, OKX, um, buy a bit world, it it feels like DeFi really is doing its best now to come up with great

solutions for fixed income. >> And and little by little, uh, they're gaining a little bit more mind share, a little bit more adoption, a little bit more credibility. and you kind of start to realize that DeFi is a place where where a lot of these fixed income ideas uh start to make a lot of sense, right? There's there and fixed income people are going to just be rolling their eyes because I'm making such simple very basic bringing feelings to a backfight type statements, but there's no central bank. There's just supply and demand. It's a it's a it's a funding market. The money market doesn't have giant institutions that are kind of, you know, lie boring rates or doing overnight repo trades to sort of inform inform what the sofa rate is going to be the next day.

It's just people instantaneously buying and selling. Uh it's it's the most decentralized and and kind of organic thing you can imagine in the world. And little by little now it is forming into these kind of clusters of activity that are giving us a sense of what the rates on stable coins both for borrowing lending should be. >> Um and it's super exciting. Um and you know you you just the idea that you can look at a rates and you can map them against crypto volatility or crypto prices and see um patterns you know that that are related. uh you know to see for instance look at a rates back in in April when the market was super super ambivalent and super weak the rates were

super low nobody wanted to borrow so um the proliferation and the adoption and the kind of hardening up of a lot of these platforms uh for raw supply and demand of defi rates is super exciting. Vaults uh are a fantastic wrapper which allows uh among many other things curators or managers to go in and identify these individual pools of borrowing and lending, put them into a portfolio and have have that portfolio emit a token which uh represents ownership or uh you know an interest in that pool. um it's a money market fund.

I I if it's chasing short-term rates or whatever other portfolio is inside the vault, it's it's that equivalent. Of course, it's not a fund. Of course, it's not a security. Of course, most of it's not regulated, but it's 24/7. It's um you know, at least on a global perspective, broadly accessible. Um, and as long as people do their homework and know what they're getting into, um, you know, they're very efficient products. And it's just exciting, I think, that that DeFi is is finally kind of finding a little bit of purchase, uh, not so much in playing the Bitcoin, Ether, Salana game, but saying, you know, playing the uh, playing the money market game. Yeah, it's vaults are

really interesting to me um for for a number of reasons and and and your whole answer um certainly gives a lot that that you want. I mean for one um your I found your comments kind of interesting. Uh thanks asset managers, they're not securities so on and so forth. Um I believe there's some language actually in one of the versions of the Clarity Act from I think the banking committees uh act where I don't remember the exact verbiage but I think they're trying to sort of say something to that effect and uh and I I think hopefully within clarity we're going to get broader clarity no pun intended for DeFi but for Vault in particular um because uh they are because I I could unfortunately see

an administration that might a little bit more crypto adversarial trying to make the argument that they these entities should be registered as as broker dealers or or or something like that. So, we'll hopefully we'll get clarity on that. But >> that's but but it's not terrible. By the way, Steve, not to interrupt you, I don't I don't see it as I see this as you know, faith is earned slowly and broken and broken very quickly, right? >> Sure. Um, I think that what's what's probably most encouraging is you're starting to see certain platforms, right? And when you think of the stack of a vault, you have a, you know, technology provider.

>> Yeah. >> You have you have curators which which more or less are asset managers of pools of things they're selecting which things go in the vaults. You have the primitives which are the things that they are uh putting in the vaults, right? Which might be an individual a pool or an individual morpho pool or something like that. And then and then you have the underlying things which fuel those pools and then you have the people who are going to buy the vault. So you have all these layers and it it's actually kind of laid out in a way which I think is more dispersed and more um sustainable than some of the other kind of structures in crypto right now.

Um but from the point of view and we being asset managers in my vertical at at um at GSR I think of the curator position as being one where you have a fiduciary-l like responsibility to generate an outcome and to owe disclosure to vault owners whether that's maybe that's just my CFA kind of code of ethics and standards pe you owe that whether whether it's whether it's inscribed in law or not um money market funds are securities. Um so I I do think the growing up process is going to be some kind of reckoning for what standards curators should be expected to maintain.

>> Yeah, I think that's a very fair point. The other thing you mentioned that I just wanted to briefly touch on was sort of the idea of creating like a real sort of like yield curve for crypto. Um it's sort it I see that almost in the same way as like how ETFs have brought in like the more traditional buyers where in a certain way it could actually dampen the volatility but perhaps like open up um sort of like the aperture of companies that could invest because it's more predictable. So it's sort of like who are you trying to go after like the the volatile momentum traders or the longer buy and hold institutions and there's sort of that tugofwar that might play out especially in that particular case. So I I just wanted to mention that because it's pretty fascinating to me.

>> It is entirely fact. I think you know if you if you the longer you look at and I spent a lot of what 20 early 2025 thinking from a from an outsers's perspective about how how how decentralized borrowing lending pools work. And you know those rates are they change instantaneously. It's not daily. It's not by the minute it's once per second or every time the pool changes the rate changes. Um so even getting a daily rate requires um requires some manipulation and then having a reliable yield curve where you could actually think about an interest rate swap market or some such basic structure uh is important. Um, fiat is blessed with a number of different ways to look at

interest rates, right? Swap market, treasury market, uh, money market and defi rates have have, I think, green shoots of those, but they are not standards which I think go across different firms or different platforms and that's what I would love to see happen. Um, you know, yield curve and credit curve, those would be two essential components of a fixed income market maturing in DeFi. >> Yeah. All right, so we're just about out of time, but I do want to touch on the other big topic of the day. Um, Clarity Act. Uh, as Yogi Bar once said, it's starting to get late early. And uh as we're speaking right now, I believe there is a meeting happening at the White House between uh President Trump, um his chief of sta staff, Susie Wilds,

um some Republican senators that have been involved in negotiations, and I think Kristen Smith, the president of the blockchain association, and they're really going to try to hammer out some sort of agreement on ethics, which is a a key u I guess a key lynch plan to get any sort of Democratic support for the bill to pass. For anyone watching who's not familiar with the the legislative process, for this type of bill and most Senate bills to go into law, you do need to get 60 votes, which means I believe you need at least seven dem seven Democrats. um one version of the Senate banking bill got out of committee by on a bipartisan basis, but the two Democratic senators who voted for it um said that they more or less voted for in

good faith to continue negotiations on things such as ethics and that um their votes on a full floor vote are not guaranteed [clears throat] and uh and we're actually awaiting a new version of the Senate bill any day. Um, few sources I talked to said it could be as early as tomorrow or or maybe more likely on on Monday. But I I mean this would be if this meeting goes well and there's a way forward and then it does look like we could see clarity get passed into law before the August 7th uh deadline. I mean that would be the catalyst for the rocket fuel that you were just making. And uh in my opinion, I mean, no one wanted to go through all the tomalt that's been involved in

negotiating this very comprehensive bill, but maybe the silver lining is that at least this could be one bullish uh instance where it's not a buy the rumor, sell the news, because the the rumor has been guess quote unquote dissipating and the news could come quickly. Um so this won't necessarily be a repeat of when Coinbase went public in in 2021. Um, perhaps it's more like when or or when President Trump actually became president. That's when the the market kind of crusted. Maybe it's more like when the ETFs went live and I guess it was what, January 2024. Is that when I I always get my years mixed up, but I I just wanted to get your I wanted to get your thoughts on on uh I I know you're not a policy wonk that this isn't

what you do, but I'm I'm sure you're seeing traders positioning for all sorts of uh uh outcomes here. and and and this one is binary and it could be coming up soon. So So what are you saying? >> Well, in the long term, it would be really important to get legislation passed and and it's it's painful to think about any time that the industry or other industries might have wasted in the past to get us where we are today. Um, you're right. I'm not a policy wonk and we do have some really smart and sharp people um at GSR who have a much keener sense of the details. My kind of, you know, zoom out take the longer something takes to happen, the less

chance it, you know, that less chance it'll it'll get done. Uh we're in a time period frame now where we need almost zero distractions and uh a pretty solid tailwind to get that much done in 3 weeks. uh polymarket odds were at 75% in May and now they're are at a little under 40%. I think and they've and they've come down kind of linearly which just you know speak to this every day that it's not done is a day is a day wasted. Um the ethics question it's hard for me to not think of that as a delicious political nugget that uh that some uh people want to kind of wrap up and take home with them to to eat another day. um to point to uh the president's, you know, personal um

interests in in digital assets. And of course, the disclosure a couple of weeks ago that he's made well clear of a billion dollars uh between himself and his family is is, you know, is is is is red meat for the Democrats. Um it's important that it gets done. I I do think at this point, um the reason that it would be a good support for the market is it would be a surprise. I do think the market would take it as a surprise that passage takes place. It's not going to be a yep, thought so. No big deal. We expected this. I don't think it's priced in right now. And so surprise is one of the most powerful um I guess emotions that can that can help fuel either up or down moves in

prices. So, uh, passage would be a surprise and I think it would be hard to imagine a market that doesn't experience some, um, some lift. >> Yeah. All right. Great. Well, I think we have to leave it there. Um, so, thanks for everyone for joining me and Indie Bear on Bits and Bips the interview. And finally, don't forget you've been getting these market breakdowns week after week on the Unchained channels, [music] but we're on our own channels now, and the old feed won't carry them anymore. Subscribe on the Bits and Bips X and YouTube pages, plus it follow on your favorite podcast platforms so you don't miss a single one. Uh, thank you Andy for joining. We'll have to have you back again soon. And >> thank you so much. I'm going to go update my feed right now. Make sure I keep getting my bits and dips.

>> Excellent. And thank you everybody watching. Um, that's it for us, but stay tuned. Hey hey hey hey hey hey hey hey hey.