
source:IGNAS | DEFI RESEARCH;Compiled: bitchain vision
Fed cuts interest rates
The biggest short-term uncertainty for cryptocurrencies in recent days is the trend of interest rates.
What signals are sent by Federal Reserve Chairman Powell at the Jackson Hall meeting (Thursday, August 22, U.S. time) and how the Federal Reserve sets interest rates at the FOMC meeting from September 16 to 17.
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Dove Tone → 2-year yield and US dollar index lower → BTC/ETH surge
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Hawks cut interest rates or maintain interest rate highs for a longer period of time → Risk dissipates, alternative investments sell first
This is the result of ChatGPT 5 Thinking and Deepseek’s Deepthink model.But many on X agree with this view, which explains the recent decline in altcoins.
Source: Jake | Wintermute Trader | Off-Counter Cryptocurrency
To be honest, cryptocurrencies’ reliance on macro factors is frustrating, but the end of the last global rate hike cycle shows that we can’t ignore them.
However, as Jake of Wintermute said above, my AI model also portrays an optimistic future:The rate cut is coming soon.The uncertainty lies in the time, frequency and amplitude of interest rate cuts.
So we are in a completely opposite situation from the way the previous cycle ends: rate cuts are coming, so is the top of the bull market even further and higher than we thought?
I hope so, but everyone I talked around was planning to sell and make a profit.
Who is buying to offset the sell?
1. Retail investors have not appeared yet
The retail investor group we rely on in the last cycle has not yet appeared.
Tracking cryptocurrency apps in the app store, source: TheBlock
2. ETFs and DATs
Instead, the biggest buyers are:
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Spot ETF
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Digital Assets Treasury (DAT)
What I worry about is: Can the purchasing power of institutional investors, DAT investors and other “whale” offset the selling of retail investors in the third and fourth cycles?Or will they lose motivation?
Ideally, this is a multi-year process, with a steady rise in prices that will gradually get rid of their weakness.
The most interesting result is that even after most cryptocurrency native users are sold, the cryptocurrency continues to rise, resulting in further gains.
Anyway, DAT is the most significant risk and bullish factor I want to briefly cover.
Now everything is related to DAT
1. The number of ETHs held by DAT
See how fast DAT gets ETH.
ETH DAT accounts for 2.4% of the total ETH supply in less than 3 months.
From another perspective,The largest ETH DAT BitMine currently holds the same amount of ETH as Kraken, exceeding OKX, Bitfinex, Gemini, Bybit, Crypto.com, and even more than Base’s holdings in the bridge.(Source: Arkham)
At this rate, the proportion of ETH in the total supply of ETH in ETH DAT holdings will exceed the proportion of BTC treasury to the total supply of BTC in a few months.In the short term, this is good for ETH, but it poses risks if the DAT holder needs to liquidate the ETH they hold.
2. mNAV downturn
But even Wassie admits that it is still unclear what happens to DAT when mNAV becomes negative.
You will see a lot of theories being shared on X, but my suggestion is to keep track of the DAT data, especially when mNAV continues to trade below 1.
At the time of writing,SBET and BMNR appear to trade slightly above mNAV 1, while BTCS appears to trade below 1.
So what is BTCS doing?
To attract more stock buyers, BTCS announced its first “double dividend”: a one-time blockchain dividend, an ETH dividend of $0.05 per share and a USD dividend of $0.35 per share.
Most importantly, they offer…Please read carefully… “We will provide a one-time Ethereum loyalty payment of $0.35 per share to shareholders who transfer their shares to our transfer agency and register until January 26, 2026.”
For cryptocurrency native users, BTCS appears to be building a TradFi staking mechanism to prevent its shares from selling.Their motivation for offering double returns is that their mNAV value is less than 1 and that it “prevents market manipulation” by preventing shares from being lent to short sellers.
in addition,Where do these dividends come from?They divided the ETH they obtained.
It doesn’t look very good.Right?
At least they haven’t sold ETH publicly.I suspect the first DATs that surrender and sell cryptocurrencies will be small companies that won’t attract stock buyers.
3. DAT dashboard
So, follow the dashboard below, identify the DAT, and study how they handle the cryptocurrency they hold.
Encrypted Twitter may ignore smaller DATs, but they will give us an idea of what a larger, systemically important DAT will do.
Here are some dashboards to pay attention to:
What makes things difficult is that you will notice that each dashboard reports slightly different data.
We need to pay close attention to the movements of other DATs.
4.Record ETH redemption queue
But if the current mNAV premium is low andRecord ETH redemption queue, causing the ETH rally to slow in a few days or weeks, I wouldn’t be surprised.
Before moving to another topic, I would like to add that I am becoming more optimistic about the DAT created for altcoins.
Reasons to be optimistic about altcoin DAT
This cycle has witnessed a record number of new tokens issued on the market.Although most are worthless Meme coins, the cost of issuing tokens has basically dropped to zero.
Compared to previous cycles, a proof-of-work fork requires some hardware equipment (such as Litecoin and Dogecoin), or building staking infrastructure (such as EOS, SOL, ETH).Even in the previous cycle, token issuance requires some technical knowledge.
Before this cycle, the number of tokens to be paid attention to is “controllable”.Including some lending protocols, DEX tokens, some L1 tokens, infrastructure tokens, etc.
With the cost of token issuance dropping to zero and more projects launching tokens, especially due to the rise of pumpfun, altcoins have struggled to attract enough attention and inflows.
In the example below, I share 11 numbers.But what if there are thousands of numbers?There is no Schelling point to pay attention to.
Only Bitcoin and other currencies.Coupled with Microstrategy’s continued buying, only BTC successfully rose.
The altcoin DAT changed this dynamic.
First, few altcoin projects can be carefully planned for DAT purchases.This requires a specific set of knowledge and skills that most programs do not have.
Second, only a limited number of altcoins are “worthy” to have DAT.For example, Aave, Ethena, Chainlink, Hype or a DeFi token index.
Third, and perhaps most important, DAT gives ICO projects the opportunity to IPO, thereby attracting institutional capital that was not available.As I wrote on X:
I think the altcoin DAT is just crazy Ponzi games.
But think about it carefully, DAT allows altcoins to be listed: from ICO to IPO.
BNB’s DAT is like Binance’s IPO, otherwise they might not be able to do that.
Alternatively, AAVE DAT can allow TradFi to invest in future lending businesses.
Give birth to more such DATs.——Defi Ignas
Finally, unlike BTC and ETH, altcoins do not have ETFs to attract institutional investors.
So, I will focus on the altcoin DAT space as they bring different dynamics in absorbing VC sales (via OTC) or buying tokens at discounted prices.
Ethena is already an early example, but I want to see what happens when altcoins with a large proportion of circulating supply get DAT.
Is it time to settle profits? Check out market indicators
As I wrote above, many of the people I have talked to plan for sale.
But they don’t want to sell at their current prices.
Why?Because all indicators look surprisingly healthy.
1. Profit and Loss Indicators
This CryptoQuant integrated momentum indicator is usedProfit and Loss IndexTo track bull and bear market cycles.
TL;DR (Not much changed since a few months ago.
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Bitcoin is in the middle of a bull market.
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The holder is taking profits, but no extreme excitement has appeared.
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Until the valuation is too high, there is still a possibility of price increase.
2. Delphi BTC Top Signal
That being said, the Delphi BTC Top Signal dashboard shows close to overheating, but the intensity score is still around the acceptable 56.7.The highest value hovers around 80.
3. Fear and Greed Index Return to Neutrality
4. Coinglass bull top indicator, tracking 30 data
Source: Coinglass
None of them showed that they reached the potential market top.
5. Financing rate
I used to track the peak financing rate at the top of the market, but I wondered if this indicator was distorted by Ethena.
High interest rates mean too many longers, which is usually before the surge is high.But Ethena’s USDe breaks that signal.
Ethena stablecoin converts funds into returns by long spot and shorting perpetual contracts.As interest rates rise, more USDes are minted, more shorts are pouring in, and funds are gradually cooling down.This is a loop.
Therefore, high financing no longer means that the market is overheated.This may just mean that Ethereum is printing more dollars.
So, what if we didn’t track financing rates but track the supply of USDe?In this case, the market looks very hot.USDe’s supply doubled in a month.
6. The market prospects are good but there is potential leverage
Overall, I think the market prospects are good.However, as a large number of crypto investors in the third and fourth cycles have unrealized profits, each surge is sold.
I hope DAT and ETH can absorb the sell-off.
The bear market is also likely to arrive unexpectedly again due to macroeconomic shocks.This macro oscillation could eventually reveal hidden leverage that has not been found in cryptocurrencies.
In my first previous “State of Market” series, I shared several potential areas of leverage:
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Ethena: Most of USDe’s support has moved from ETH to BTC and now to liquid stablecoins.
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Re-staking: The narrative is still dormant, but LRT is integrating into the OG DeFi infrastructure
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Cycle: Degens pursues higher returns and leverage mining through cyclic positions.Recently, Justing Sun extracted its holdings, causing the ETH collateral rate to soar, triggering an ETH redemption wave.
Ethena was once the primary focus, but now DAT is the main goal.What if there are hidden levers that we don’t even know about?
This made me sleepless all night.
What will you do after you make a profit?
Transferring my tax location to Portugal has changed my view on cryptocurrencies.
If the asset is held for more than 365 days, capital gains will be taxed at a rate of 0%.In addition, there is no tax on currency transactions.
This means I can exchange it for a stablecoin, hold it for a year, and then get tax-free income.
The question is: Where would you put stablecoins to maximize your gains without having to rotate them while sleeping well?
Surprisingly, few protocols are competent for this task.The pursuit of high returns forces you to switch from one agreement to another.You also need to be alert to the “treasury migration” when contract upgrades and the risks of hacking attacks.
The most mentioned are Aave, Sky (Maker), Fluid, Tokemak, Etherfi vault, but there are more options like Harvest Finance, Resolv, Morpho, Maple, etc.
question:Which protocol do you think is worth putting your stablecoin in for a year?
Personally,Only two are likely to pass the test.First is Aave.
However, the growth of USDe and the first ETH/ETH loop made me a little worried about a massive liquidation event (although the new Aave’s Umbrella mechanism helped).
Sky is the second one.
What worries me is thatS&P Global Ratings’ B-rating for Sky is the first credit rating for all stablecoin systems.
B-Rating puts it in a risky but not yet collapsed category.
weakness:
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Concentrated depositors
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Governance is still tied to Rune
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Weak capital buffer
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Regulation is unclear.
This means that Sky’s stablecoins (USDS, DAI) are seen as credible but fragile.
They work well during normal times, but stressful events such as large-scale withdrawals or loan losses can be severely hit.
As PaperImperium commented, “It’s a catastrophic rating for a major stablecoin.”
Despite this, TradFi’s risk tolerance is much lower than the habits of cryptocurrency natives, putting all stablecoins in one protocol is not feasible.
This also shows that the cryptocurrency market is still in its early stages and there is no real passive investment yet.Except BTC and ETH (staking on Lido meets my criteria).
That’s all for now.Hope to see you soon!