Rally Fades: Funding, Basis & No Fed Cut Signals a Hedged/Risk-Off Market
This post is part of Galaxy Lending’s Monthly Market Commentary, offering insights into trends shaping the crypto credit and lending landscape. Subscribe to receive this commentary and more directly to your inbox.
In this report:
TradFi vs. DeFi: Yield Compression Shifts Capital Back to Traditional Markets
Cantor Fitzgerald Leads TradFi's Charge into Bitcoin
Market Update
March opened with bullish momentum after President Trump announced a U.S. strategic crypto reserve, pushing BTC near $95K and triggering sharp rallies in ETH, XRP, SOL, and ADA. But the optimism quickly faded—BTC retraced within days, revealing the move as largely headline-driven.
Perpetual funding rates, which reflect the aggressiveness of long vs. short positioning in the derivatives market, remained muted. Hyperliquid’s funding plunged to -33% APR mid-month and stayed negative for days, while Bybit saw repeated dips into negative territory. This persistent negative skew signaled growing bearish pressure or widespread defensive hedging, even as spot prices tried to hold up.
In contrast, the BTC 3-month basis—an indicator of institutional sentiment and demand for leverage—compressed from 6% back to 5% by month-end, indicating softening risk appetite and reduced willingness to hold directional exposure.
Together, the compressed basis and persistently negative funding painted a clear picture: the market was long spot but defensively hedged via perps, reflecting risk-off sentiment. As alluded to earlier, BTC’s price action confirmed this, with lower highs, failed rallies, and a rejection below $85K. Altcoins underperformed into month-end. Macro headwinds—particularly the CPI print and FOMC meeting—further weighted on sentiment, ending the month with caution firmly in control.
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Key Trends...
TradFi vs. DeFi: Yield Compression Shifts Capital Back to Traditional Markets
The “risk-free” interest rate—anchored by Fed policy—is a baseline for investors allocating capital. When Powell held rates steady at the March FOMC meeting, it signaled continued strength in traditional fixed-income yields. Three months government bonds currently offer yields around 4.3%–4.4%, providing a relatively attractive low-risk return.
Meanwhile, DeFi protocols like Spark.fi have seen yield compression—its savings rate dropped from 6.5% to 4.5% in March. Investors turn to on-chain protocols for yields that can exceed the traditional fixed-income instruments. When on-chain yields underperform TradFi benchmarks, especially without offering a compensating risk premium, capital flows tend to reverse course—from crypto-native protocols back into traditional markets.
Cantor Fitzgerald Leads TradFi’s Charge into Bitcoin
Cantor Fitzgerald, a major Wall Street player managing over $2 trillion in assets, recently launched a $2 billion Bitcoin financing initiative—partnering with Anchorage Digital and Copper for custody and collateral management. With Cantor positioning itself as the institutional sponsor of Bitcoin, this move sets the stage for a broader wave of TradFi adoption. As TradFi firms increasingly realize the yield, liquidity, and collateral utility potential of digital assets, we’ll likely see a wave of banks, funds, and brokers racing to catch up. The multi-trillion-dollar financial system is waking up to crypto’s monetization layer.
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Notable Industry News
Crypto Exchange Kraken Strikes $1.5B Deal for Futures Trading Business
Trump’s Crypto Summit: ‘The U.S. Will Be the Bitcoin Superpower’
BlackRock CEO Larry Fink Warns Dollar at Risk of Losing Reserve Currency Status to Bitcoin
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