Source: IGNAS | DEFI RESEARCH; Compiled by: Golden Finance
Federal Reserve rate cuts
The biggest short-term uncertainty for cryptocurrencies in the near term is the direction of interest rates.
What signals will Federal Reserve Chairman Powell send at the Jackson Hole symposium (Thursday, August 22, US time) and how the Fed will set interest rates at the FOMC meeting on September 16-17.
Dovish tone → 2-year yield and US dollar index fall → BTC/ETH surges
Hawkish rate cuts may keep interest rates high for a longer period → Risk dissipates, and alternative investments are sold first
This is the result of ChatGPT 5 Thinking and Deepseek's Deepthink model. But many people on X also agree with this view, which explains the recent decline in altcoins.
Source: Jake | Wintermute Trader | OTC Crypto
To be honest, cryptocurrencies’ dependence on macro factors is frustrating, but the end of the last global interest rate hike cycle shows that we can’t ignore them.
However, as Jake from Wintermute mentioned above, my AI model also paints an optimistic picture of the future: rate cuts are coming. The uncertainty lies in the timing, frequency, and magnitude of these cuts.
So, we are in the exact opposite situation of how the last cycle ended: interest rate cuts are coming, so is the bull market top further and higher than we thought?
I hope so, but everyone I talk to is planning to sell and take profits.
Who is buying to offset the selling?
1. Retail investors haven’t shown up yet
The retail investor base we relied on last cycle has not yet emerged.
Tracking cryptocurrency apps in app stores. Source: TheBlock
2. ETFs and DATs
Instead, the biggest buyers are:
Spot ETFs
Digital Asset Treasury (DAT)
My concern is: can the buying power of institutional investors, DAT investors, and other “whales” offset the retail selling in cycles 3 and 4, or will they run out of steam?
Ideally, this is a multi-year process whereby steadily rising prices gradually break free from weakness.
The most interesting result is that the cryptocurrency continues to rise even after the majority of its native users sell, leading to further gains.
Regardless, DAT is the most significant risk and bullish factor I would like to briefly touch upon.
It's all about DAT now
1. The amount of ETH held by DAT
See how quickly DAT acquires ETH.
It took ETH DAT less than 3 months to capture 2.4% of the total ETH supply.
To put this in perspective, the largest ETH DAT, BitMine, currently holds the same amount of ETH as Kraken, and exceeds OKX, Bitfinex, Gemini, Bybit, Crypto.com, and even Base’s holdings in the bridge. (Source: Arkham)
At this rate, the ETH held by ETH DAT as a percentage of the total ETH supply will exceed the BTC treasury's share of the total BTC supply within a few months. This is positive for ETH in the short term, but it poses risks if DAT holders need to liquidate their ETH holdings.
2. Low mNAV
But even Wassie acknowledges that it remains unclear what happens to DAT when mNAV goes negative.
You’ll see a lot of theories being shared on X, but my advice is to continue tracking the DAT data, especially while mNAV continues to trade below 1.
At the time of writing, SBET and BMNR appear to be trading slightly above an mNAV of 1, while BTCS is trading below 1.
So what is BTCS doing?
To attract more stock buyers, BTCS announced its first “double dividend”: a one-time blockchain dividend of $0.05 per share in ETH and $0.35 per share in USD.
On top of that, they are offering… read this carefully… “We will provide a one-time loyalty payment of $0.35 per share in Ethereum to shareholders who transfer their shares to our transfer agent for registration and hold them until January 26, 2026.”
For crypto native users, BTCS appears to be building a TradFi staking mechanism to discourage selling of shares. Their incentive to offer double yield is that their mNAV is below 1 and that it “prevents market manipulation” by preventing shares from being loaned out to short sellers.
Also, where do these dividends come from? They distribute the ETH they receive.
Doesn't look good. Right?
At least they haven’t publicly dumped ETH yet. I suspect the first DATs to capitulate and dump their crypto will be smaller companies that can’t attract buyers for their stock.
3. DAT Dashboard
So, keep an eye on the dashboard below to identify DATs and research how they handle their cryptocurrency holdings.
Crypto Twitter may ignore smaller DATs, but they give us an idea of what larger, systemically important DATs will do.
Here are some dashboards to keep an eye on:
Blockworks
The Block
Delphi
Crypto Treasuries1
Crypto Treasuries 2
Crypto Stock Tracker
To make things difficult, you’ll notice that each dashboard reports slightly different data.
We need to keep a close eye on the movements of other DATs.
4. Record-breaking ETH redemption queue
But I wouldn’t be surprised if the ETH rally slows down in a few days or weeks due to the current low premium to mNAV and the record ETH redemption queue.
Before moving on to another topic, I want to add that I am increasingly optimistic about the creation of DATs for altcoins.
Reasons to be optimistic about altcoin DAT
This cycle has seen a record number of new tokens launched into the market, and while most of them are worthless meme coins, the cost of issuing tokens has essentially dropped to zero.
Compared to previous cycles, proof-of-work forks require some hardware equipment (such as Litecoin and Dogecoin) or setting up staking infrastructure (such as EOS, SOL, ETH). Even in the previous cycle, token issuance required some technical knowledge.
Before this cycle, the number of tokens that need attention is "controllable", including some lending protocols, DEX tokens, some L1 tokens, infrastructure tokens, etc.
As token issuance costs drop to zero and more and more projects launch tokens, especially due to the rise of pumpfun, altcoins are struggling to attract enough attention and capital inflows.
In the example below, I shared 11 numbers. But what if there are thousands of numbers? There are no Schelling points to focus on.
Only Bitcoin and other currencies. Coupled with Microstrategy's continued buying, only BTC managed to rise.
Altcoin DATs changed this dynamic.
First, few altcoin projects are able to orchestrate DAT purchases. This requires a specific set of knowledge and skills that most projects do not possess.
Second, there are only a limited number of altcoins that are “worthy” of owning a DAT: Aave, Ethena, Chainlink, Hype, or a DeFi token index, for example.
Third, and perhaps most importantly, DATs give ICO projects the opportunity to IPO, thereby attracting institutional capital that would otherwise be unavailable. As I wrote on X:
I think altcoin DATs are just crazy Ponzi schemes.
But if you think about it, DAT allows altcoins to go public: from ICO to IPO.
BNB’s DAT is like Binance’s IPO, which they probably wouldn’t have been able to do otherwise.
Alternatively, AAVE DAT could allow TradFi to invest in future lending businesses.
Give birth to more DATs like this. — Defi Ignas
Finally, unlike BTC and ETH, altcoins do not have ETFs to attract institutional investors.
Therefore, I will focus on the altcoin DAT space as they bring different dynamics in terms of absorbing VC sales (via OTC) or acquiring tokens at a discount.
Ethena is already an early example, but I want to see what happens when altcoins with a significant percentage of circulating supply acquire DAT.
Is it time to take profits? Check market indicators
As I wrote above, many people I spoke with planned to sell.
But they don't want to sell at current prices.
Why? Because all indicators look surprisingly healthy.
1. Profit and loss indicators
This CryptoQuant all-in-one momentum indicator uses the Profit and Loss Index to track bull and bear cycles.
TL;DR (Not much has changed since a few months ago.
Bitcoin is in the middle of a bull run.
Holders are taking profits, but there is no extreme euphoria yet.
Prices still have room to rise before becoming overvalued.
2. Delphi BTC Top Signal
That being said, the Delphi BTC Top Signal dashboard indicates that it is approaching overheating, but the strength score is still around an acceptable 56.7. The highest value hovers around 80.
Source: Delphi
3. The Fear and Greed Index returned to neutral
4. Coinglass Bull Top Indicator, tracking 30 data points
Source: Coinglass
Neither indicates a potential market top has been reached.
5. Financing interest rate
I used to track funding rate spikes at market tops, but I wonder if this metric is being distorted by Ethena.
High interest rates indicate an excess of longs, which usually precedes a surge. But Ethena’s USDe broke that signal.
The Ethena stablecoin converts funds into returns by going long on spot contracts and shorting perpetual swaps. When interest rates rise, more USDe is minted, more shorts pour in, and funds gradually cool. This cycle continues.
Therefore, high financing no longer means the market is overheated. It may just mean that Ethereum is printing more dollars.
So what if, instead of tracking funding rates, we track the supply of USDe? In this case, the market looks hot. The supply of USDe has doubled in a month.
6. The market outlook is good, but there is potential leverage.
Overall, I think the market outlook is good. However, since a large number of crypto investors from the third and fourth cycles are sitting on unrealized profits, every big rally will be sold off.
I expect DAT and ETH to absorb the sell-off.
There is also a strong possibility that a bear market could once again arrive unexpectedly due to a macroeconomic shock that could ultimately reveal hidden leverage in cryptocurrencies that has yet to be discovered.
In my first post in the “State of the Market” series, I shared several potential areas for leverage:
Ethena: Most of the backing for USDe shifted from ETH to BTC and now to liquid stablecoins.
Restaking: The narrative is dormant, but LRT is integrating into OG DeFi infrastructure
Circularity: Degens pursue higher returns by leveraging their holdings through circular positions. Recently, Justing Sun withdrew his ETH holdings, causing the ETH collateralization ratio to surge, triggering a wave of ETH redemptions.
Ethena was the primary focus, but now DAT is the main target. What if there is hidden leverage that we don’t even know about?
This kept me awake at night.
What will you do after you make a profit?
Shifting my tax residency to Portugal changed my perspective on cryptocurrencies.
If the asset is held for more than 365 days, capital gains are taxed at 0%. Additionally, there is no tax on crypto-to-crypto transactions.
This means I can convert to a stablecoin, hold it for a year, and receive a tax-free gain.
The question is: where would you hold your stablecoins to maximize returns without having to rotate them while sleeping soundly?
Surprisingly, few protocols are up to the task. The pursuit of high returns forces you to switch from one protocol to another. You also need to be wary of "vault migrations" during contract upgrades and the risk of hacker attacks.
The most mentioned ones are Aave, Sky (Maker), Fluid, Tokemak, Etherfi vault, but there are many more options such as Harvest Finance, Resolv, Morpho, Maple, etc.
Question: Which protocol do you think is worth keeping your stablecoin in for a year?
Personally, there are only two that could possibly pass the test. The first is Aave.
However, the growth of USDe and the first ETH/ETH cycle makes me a bit worried about a mass liquidation event (although the new Aave Umbrella mechanism helps).
Sky is the second one.
What worries me is that S&P Global Ratings’ B- rating for Sky is the first credit rating for any stablecoin system.
A B- rating puts it in the risky-but-not-yet-collapse category.
Weaknesses:
Concentrated depositors
Governance is still tied to Rune
Weak capital buffers
The supervision is unclear.
This means that Sky’s stablecoins (USDS, DAI) are seen as trusted but fragile.
They work well in normal times, but stress events such as large withdrawals or loan losses can hit hard.
As PaperImperium commented, “This is a disastrous rating for a major stablecoin.”
Still, TradFi’s risk tolerance is much lower than what crypto natives are accustomed to, but putting all stablecoins in one protocol is not feasible.
This also shows that the cryptocurrency market is still in its early stages and there are no true passive investments yet. Except for BTC and ETH (staking on Lido meets my criteria).
That’s all for now. See you soon!
