Let's get to the big story.
Breakdown.
Bitcoin edging close to 67,000 earlier this week.
But in New York morning trade on this Thursday, we are looking at Bitcoin struggling to hold that 65,000 level and this does come amidst ongoing geopolitical tension in the Middle East as well as a stalled clarity act in the nation's capital.
And with just 14 days until the Senate recess, friction over ethics enforcement is threatening to derail the legislation while Senate Republicans releasing.
Draft of the bill yesterday.
Senate Dems are opposed to what they see as weak ethics provisions on Trump family crypto ventures.
Yet beneath the macro noise, there are a lot of fundamental shifts in ETF inflows are rebounding, and we're also looking at portfolio allocators beginning to heavily overweight in anticipation of on chain growth.
So here to help us navigate the cross countries across currents is Andy Baehr, managing director of asset management at GSR.
Andy, good morning.
Thank you so much for joining us.
Yes, we were hoping for a slow summer where we could sort of gather our thoughts here, and I was actually going to come in this morning with a message to sort of pump the brakes a little bit on all the optimism that the crypto market has recently felt after that CPI print last week after it looked like activity was happening with the Clarity Act, after prices were recovering.
It looks like the market's doing it for us.
It's pumping the brakes with higher interest rates, higher oil, geopolitical flare up.
And now this kind of reality check on the progress that was or maybe wasn't made on clarity with the ethics provision.
Yes, and absolutely, because we do have to look at what's happening in terms of geopolitics as well as fundamentals and given the fact that we're counting down to the Fed meeting next week and we saw that jobless claims number come in lower than expected at a time when bond yields are surging yet once again.
So tell us what this means in terms of the data you're watching when it comes. flows, I think flows still are anemic.
The ETF flows have started to resume.
In fact, we've had the most consecutive days of crypto inflows in quite a while, but that's recovering from a lot of outflows this year.
So I think it's a great time with all this news and shifting and S&P futures down over 1% to sort of step back and take a little bit longer perspective.
I think what we've been saying recently is that with respect to Bitcoin.
We really don't see the elements of a strong lasting rally until the market sort of achieves what I'm calling peak hawkishness with the Fed.
In other words, real interest rates look like they are expected to rise.
In other words, the Fed's policy might outshoot inflation expectations, and that's really always going to be a headwind for Bitcoin.
The moment that we feel like we've gotten to the crest of that hill, I think you'll see a wash of optimism come back in as if we've kind of gotten past it.
The fever will have broken.
The solstice will have been achieved.
So for Bitcoin, I think that's going to be some pressure.
E is another story, right?
Eth, you have all this great news on tokenization and on stablecoins.
You have these 3 new Ethereum Foundation spin-offs which are out there making noise about what Ether and the Ethereum network are really doing.
And so you might begin to see a departure.
Uh, we've already allocated our core 3 portfolio to have much less Bitcoin and much more Ethereum this week.
With a sign that that momentum may be continuing.
Yes, so I do want you to expand on that, especially because we sometimes see ET get neglected when we're talking about price action in the crypto market.
So do you expect to see ET leading the way higher?
Last year 2025.
It was a great example of the token being beaten down.
It was a favorite hedge fund short.
It was really unliked.
It was really the surprise drawdown after the inauguration in 2025.
And then all of a sudden in the spring, 2nd and 3rd quarter, it had a massive rally.
And it drew with it all the other blockchain assets, all the growth assets, technology assets, and it got very near its all-time high by July.
The Genius Act obviously helped as a propellant, you know, given all the stablecoin activity on Ethereum.
So that was great.
Of course we're in a bear market since then, but again, we have this same condition when E's been beaten down pretty hard, a little bit harder than you would have.
Expected given its size, it's become unloved.
There are questions about the Ethereum Foundation's kind of plan and vision, and now it's starting to turn.
So we always like Eth-led rallies because they're never singular.
They bring with it all of their blockchain assets and growth, layer twos, you know, data and infrastructure companies, even technology outside of blockchain assets.
We like those things.
We'd like to see take off here, especially if Bitcoin is held up by waiting for the Fed to sort of go through its own seasons.
Yes, and speaking of which, of course we're paying attention to what's happening in commodities, in particular oil, given the situation in the Middle East, and we're monitoring what's happening with Treasury yields as well as bonds.
But when it comes to DFI rates, give us an understanding. of what's happening here and why I started to really get kind of almost addicted to looking at DI.
There's so many great vaults now and actually, you know, SEC Chair Hurst had a lot to say about how Defi vaults may be regulated in the future because they really, many of them really feel like asset management products and they may have to be regulated as such.
That's kind of the way we're thinking about it at GSR, but.
You know, there's so many great rates to look at all the way from very, very low risk DFI rates that just serve very big pools out to very, very speculative things, but all those rates are low right now.
The most near term and safest DFI rates are still below so far.
That doesn't really make sense.
It just speaks to this very, very slight demand for leverage right now and a tremendous supply of stable points for yield.
When those rates start to rise, especially relative.
Fiat rates, we think that's the beginning of more support for crypto prices.
Yes, and finally, before I let you go, of course there's so many cross currents here because we're coming off alphabet earnings.
We're talking about AI CPE, but given what we're seeing right now in terms of oil prices as well as yields, rate expectations are shifting.
So what do you think this means overall as we head into the second half of 2026 for digital assets, in particular crypto?
Particular crypto, I mean it could be dicey for equities right now.
I mean we've we've had a year.
I was in an investment committee for a board I sat on last night and we were just looking at how what's called a low quality rally, right?
A lot of names that a lot of active managers didn't expect to do extremely well have of course doubled or tripled.
So we're, there's a sense of froth and a sense of low quality rally in equities right now, um, to the extent that that corrects and today is kind of an example of how that can correct and especially in tech.
Crypto has been pretty resilient.
It's already so beaten down.
It's sort of, you know, down to support levels here.
So I would think and in a way hope that we start to see independent behavior in major digital assets from these kind of low quality equity rallies and that you know Bitcoin will follow its macro. path Ether and other blockchain growth assets like Solana will follow their growth path and we'll start to see some better diversification effect which would make crypto an even better asset class to allocate to a multi-asset portfolio.
Well, Andy, thank you so much for weighing in this morning.
I appreciate your time as well as all of your insights.
Thank you.
