Current State of the Market & What's Next #7
At the moment I’m writing this, the greatest short-term uncertainty for crypto is the trajectory of interest rates.
What Powell signals at Jackson Hole (Thu, Aug 22) and how the Fed sets the rate dots at the Sept 16–17 FOMC.
Dovish tone → 2Y yields and DXY ease → BTC/ETH pump
Hawkish cut or higher-for-longer → risk comes off and alts dump first
That’s the results of ChatGPT 5 Thinking and Deepseek’s Deepthink models. But many on X agree, explaining the recent altcoin dip.
Tbh, crypto's reliance on macro factors is frustrating, but the last cycle topping with global rate hikes shows we can't ignore them.
Yet as Jake from Wintermute says above, so do my AI models paint a bullish future: interest rate cuts are coming. The uncertainty is when, how often and how steep are the cuts.
Thus we are at the exact opposite of how the last cycle ended: cuts are coming, so bull market top is farther away than we think?
I hope so, but everyone around me I talk to are planning to sell.
Then who is buying to offset the selling?
The retail degen crowd we relied last cycle aren’t here yet (track crypto apps on iOS store). Instead, biggest buyers are:
Spot ETFs
Digital Asset Treasuries (DATs)
My worry: Will the buying power of institutions, DATs, and other whales offset the selling of the 3rd and 4th cycle retail crowd? Or will they run out of steam?
Ideally, it's a multiyear process and a steady price increase will shake out weaker hands gradually.
The most entertaining outcome would be crypto pumping even after the majority of crypto natives sell, leading to further pumps.
In any case, DATs are the most significant risk and bullish factor that I’d like to briefly cover.
It’s All About DATs Now
Just look how fast ETH is being acquired by DATs.
It took less than 3 months for ETH DATs to acquire 2.4% of the total ETH supply.
To put that in perspective, the largest ETH DAT (Bitmine) now holds as much ETH as Kraken, and more than OKX, Bitfinex, Gemini, Bybit, Crypto com, and more than Base holds in the bridge. Source: Arkham.
At this rate, ETH DATs will overtake BTC by % of total ownership in a few months. This is bullish for ETH in the short run, but poses risks in case DATs need to liquidate their ETH holdings.
If you’re still unsure how DATs operate, I recommend reading the thread below.
But even wassie admits that it’s still unclear what DATs will do when mNAVs turn negative.
You’ll see many theories being shared on X, but my advice is to continue tracking DAT data and especially if mNAV continue to trade below 1.
At the time of writing it seems that SBET, BMNR are trading just above mNAV of 1, and BTCS below 1.
So what BTCS is doing?
To attract more share buyers, BTCS announced the first ‘bivident’: one-time blockchain dividend of $0.05 per share in ETH and $0.35 per share.
On top, they offer…..read this carefully….. “we are offering a one-time $0.35 per share Ethereum loyalty payment to shareholders who move their shares to book entry with our transfer agent and hold them there through January 26, 2026.”
To crypto natives, it looks like BTCS is building TradFi staking mechanism not to sell shares. Their motivation to give bividents comes from mNAV value below 1 and to “protect against market manipulation” by preventing shares from being lent to short-sellers.
Also, where are these dividends coming from? They are giving their ETH they acquired.
Not looking good. Right?
At least they are not publicly dumping ETH yet. I suspect the first DATs to capitulate and sell their crypto will be smaller companies unable to attract share buyers. So track the below dashboards to identify DATs and research what they do with their crypto holdings.
It’s possible that crypto twitter will ignore smaller DATs but they’ll give us insight on what larger and systemically important DATs will do.
Here are a few dashboards to follow:
And there are quite a few more on this post by f1shy.
Making things difficult, you’ll notice that data reported by each dashboard is slightly different.
We need to keep a close eye on what other DATs are doing.
But I wouldn’t be surprised if due to current low premium to mNAV and record ETH unstaking queue, ETH rally slows down for a few days or weeks.
Before moving on to another topic, I’d like to add that I’m becoming more optimistic about DATs created for altcoins.
Bull Case for Altcoin DATs
This cycle has seen a record number of new tokens issued to the market. Although most are valueless memecoins, the cost of issuing a token has essentially dropped to zero.
Contrast this with previous cycles, when Proof of Work forks required machinery (like Litecoin and Doge), or building staking infrastructure (such as EOS, SOL, ETH). Even in the last cycle, token issuance required some technical knowledge.
Before this cycle, the number of tokens to focus on was ‘manageable’. A few lending protocols, DEX tokens, a few L1s, infra tokens etc.
As token issuance costs went to zero and more projects launch tokens, and especially due to the rise of pumpfun, altcoins to struggle in attracting sufficient attention and inflows.
In the example below I share 11 numbers. But what if there are thousands of numbers? There are no Schelling points to focus on.
There was only bitcoin and the rest. Coupled with Microstrategy’s continued buying, only BTC managed to pump.
Altcoins DAT changes this dynamic.
First, very few altcoin projects will be able to a orchestrate a DAT buying scheme. It requires a specific set of knowledge and skill that most projects don’t posess.
Secondly, only a limited number of altcoins are ‘worthy’ to have a DAT. Think of Aave, Ethena, Chainlink, Hype or a an index of DeFi tokens.
Third, and perhaps most importantly, DATs allow ICO projects to have their IPO moment, attracting institutional capital that would not be otherwise available. As I wrote on X:
I thought DATs for altcoins were just crazy Ponzi games.
But when you think about it, DATs allow altcoins to go public: from ICO to IPO.
A DAT for BNB is like a Binance IPO, which they probably wouldn't be able to do otherwise.
Or a $AAVE DAT would allow TradFi to invest in the future of lending.
Bring on more of those DATs. - Defi Ignas
Finally, unlike BTC and ETH, altcoins don’t have ETFs to attract institutional investors.
Thus alt-DATs is one area I’ll be focusing more as they bring different dynamics in regards to being able to absorb VC selling (via OTC) or acquiring tokens at a discount etc.
Ethena already is an early example, but I’d like to see what happens when an altcoin with large % circulating supply gets a DAT.
Time to Sell?
As I wrote above, many people I talk to are planning sell.
But they don’t want to sell at the current prices.
Why? Because all the metrics still look surprisingly healthy.
This CryptoQuant all-in-one momentum indicator tracks bull and bear cycles using the P&L Index.
TL;DR (not much changed since a few months ago.
Bitcoin is mid-cycle in a bull run.
Holders are taking profits, but no extreme euphoria yet.
Price appreciation still possible before overvaluation.
Having said so, Delphi BTC Top Signal dashboard shows approaching overheating but still at the tolerable 56.7 intensity score. Tops hover around 80.
Fear and Greed Index is back to Neutral.
What’s more, none of the 30 indicators tracked by Glassnode show a potential market top.
I used to track funding rate spikes for market tops, but I wonder if this metric is becoming distorted by Ethena.
High rates meant too many degens going long, usually right before a flush. But Ethena’s USDe broke that signal.
The stablecoin mints by going long spot and short perps, farming funding as yield. When rates rise, more USDe gets minted, more shorts pile in, and funding cools off. It’s a loop.
So high funding no longer means the market is overheated. It might just mean Ethena is printing more USDe.
So, what if instead of tracking funding rates, we track the supply of USDe instead? In this case the market looks hot. USDe Supply doubled in a month.
All things considered, the market looks good to me. However, due to large number of 3rd and 4th cycle degens sitting on unrealized generational wealth bags, every big pumps will be sold into.
I hope DATs & ETHs manage to absorb the selling.
It’s also quite likely that the bear market will come unexpected due to macro shakeup once again. This macro shakeup could end up revealing hidden leverage within crypto that we’ve yet to identify.
In my first "State of the Market" series post a while ago, I shared several potential areas of leverage:
Ethena: Majority of USDe backing moved from ETH to BTC, and now to liquid stablecoins.
Restaking: The narrative is dormant, but LRTs are getting integrated into OG DeFi infra
Looping: Degens chasing higher yields leverage farm by looping positions. Recent ETH unstaking has started after Justing Sun withdrew his ETH thus borrowing rates spiked.
Ethena was the number 1 concern but DATs are the main targets now. What if there’s hidden leverage we’re not even aware of?
This keeps me up at night.
What You Do After You Sell?
Moving my tax base to Portugal changed how I approach crypto.
If you hold assets for more than 365 days, capital gains are taxed at 0%. On top, crypto-to-crypto trades aren’t taxed.
That means I can rotate into stablecoins, sit for a year, and walk away with tax-free gains.
The thing is: where would you park your stablecoins to maximize yield without the need to rotate them while sleeping well?
Surprisingly, very few protocols are established enough for the task. Chasing high yield forces you to rotate from one protocol to another. You also need to be wary of ‘vault migrations’ when contracts are upgraded and, obviously, hack risks.
Aave, Sky (Maker), Fluid, Tokemak, Etherfi vaults were mentioned the most, but there many more options like Harvest Finance, Resolv, Morpho, Maple etc.
Question: which one would you feel comfortable to hold your stables for a year?
Personally, only two probably pass the test. First is Aave.
However, growth of USDe and lst ETH/ETH looping has me worried slightly in case of mass liquidation event (although new Aave’s Umbrella mechanism helps).
Sky is the second one.
What got me worried is the S&P Global Rating’s the first ever credit rating for any stablecoin system.
The B- rating puts it in the risky-but-not-collapsing bucket.
Weak points:
concentrated depositors
governance still tied to Rune
thin capital buffers
unclear regulation.
It means that Sky’s stablecoins (USDS, DAI) are viewed as credible but fragile.
They work well in normal times, but stress events like mass withdrawals or loan losses could hit hard.
As PaperImperium comments, “this is a disastrous rating for a major stablecoin.”
Still, TradFi risk tolerance is much lower than crypto natives are used to, but parking all of our stablecoins into one protocol is a no-go.
It also shows that crypto is still early and there’s no real passive investment in crypto yet. Besides BTC and ETH (staked on Lido would pass my criteria).
That’s it for now. Hope to come back soon!
really enjoyed reading this. been seen the buzz about DATs as well so it was really interesting getting your POV on it as well