According to analysts at Bernstein, the DeFi markets are waking up as the interest rate cycle becomes more dovish and a new crypto cycle begins. Analysts predict DeFi yields will rise above 5%, surpassing U.S. dollar money market funds, and reviving the crypto lending markets. This, in turn, will fuel growth for specific altcoins in the sector.
“DeFi Sector Will Rebound Once the Fed Cuts Rates!”
Research and brokerage firm Bernstein believes that Fed rate cuts are on the horizon. Analysts point to the possibility of a 25 or 50 basis point cut this Wednesday, which could spark a return of DeFi yields. Analysts Gautam Chhugani, Mahika Sapra, and Sanskar Chindali state:
“With a potential rate cut around the corner, DeFi yields are looking attractive again. This could be the catalyst needed to restart crypto lending markets and reignite interest in DeFi and Ethereum.”
DeFi Altcoins and Yield Potential
DeFi altcoins enable global participants to provide liquidity in decentralized lending markets, earning yields from stablecoins like USDC and USDT. Although the “DeFi summer” of 2020 may feel like a distant memory, stablecoin lending yields on platforms such as Aave still hover between 3.7% and 3.9%, offering attractive returns despite a quieter market.
The Rebirth of DeFi Altcoins
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Bernstein’s analysts believe that a dovish rate cycle and a new crypto cycle are reviving crypto lending markets. Although total value locked (TVL) in DeFi is still half of its 2021 peak, it has doubled from its 2022 low to reach $77 billion. Moreover, monthly DeFi users have grown three to four times from their lowest levels.
Analysts also note that stablecoins have bounced back to a high level of $178 billion, while monthly active wallets remain steady at around 30 million. These are signs of a recovering crypto DeFi market, which is expected to accelerate further as rates drop. If crypto investors’ appetite for lending increases, stablecoin DeFi yields could surpass 5%, outpacing U.S. dollar money market funds and fueling the crypto lending markets. This development could provide a major boost to altcoins in this sector.
Which Altcoins Are in Bernstein’s Portfolio?
Reflecting this trend, Bernstein has added Aave to its portfolio of digital assets, replacing derivative protocols GMX and Synthetix. The analysts highlight that Aave’s total outstanding debt has tripled from its January 2023 lows, and Aave’s token price has surged 23% in the last 30 days, despite Bitcoin remaining flat. The portfolio also includes ETH, OP, ARB, POL, LDO, SOL, UNI, LINK, and RON, alongside Bitcoin.
Ethereum’s Role and Future Potential
Ethereum has underperformed Bitcoin, but analysts believe the strengthening of DeFi lending markets on Ethereum could draw back large whales and institutional investors to crypto lending markets. This could act as a catalyst to halt Ethereum’s underperformance relative to Bitcoin. As the analysts state, “We believe it is time to refocus attention on DeFi and Ethereum.”
In summary, Bernstein predicts that the DeFi sector is set to revive as the Fed approaches a rate cut, with significant implications for the crypto lending markets and the altcoins involved. As rates drop and investor interest in crypto lending returns, these DeFi-focused altcoins could be poised for substantial growth.
