Ethereum’s prowess in the DeFi lending sector may be the key to reversing Ether’s recent underperformance and could lure substantial institutional investments into the market.

Analysts at Bernstein, including Gautam Chhugani, Mahika Sapra, and Sanskar Chindalia, foresee a scenario where potential Federal Reserve interest rate cuts could rejuvenate the crypto credit markets. This renewed vigor could reignite interest in decentralized finance (DeFi) and Ethereum (ETH/USD).

The Bernstein team highlighted that DeFi platforms allow global users to earn yields on stablecoins such as USDC/USD and USDT/USD by providing liquidity in decentralized lending markets. Despite the market cooling off from the DeFi explosion in 2020, the yield on stablecoin lending within Aave (AAVE/USD) – the largest lending market on Ethereum – remains relatively robust, ranging between 3.7% and 3.9%. The analysts suggest that a dovish turn in interest rates coupled with a new crypto cycle could breathe new life into crypto lending markets.

Indicators of a recovering DeFi market are evident in the total value locked (TVL) in DeFi platforms, which has more than doubled from its 2022 low, reaching $77 billion. There has also been a three to fourfold increase in monthly DeFi users since the market’s nadir. Stablecoin holdings have surged back to around $178 billion, and the number of monthly active wallets remains steady at about 30 million.

Despite Ether’s struggles compared to Bitcoin (BTC/USD), analysts believe that a revitalized DeFi lending market on Ethereum could attract large investors and institutional entities back to crypto credit markets. This influx of capital could act as a catalyst to mitigate Ether’s relative underperformance against Bitcoin.

The resurgence of DeFi yields is significant for the broader crypto market. Higher yields could boost digital asset prices and draw substantial investors back into crypto credit markets. If crypto traders’ appetite for credit grows, stablecoin DeFi yields might surpass 5%, outpacing those offered by U.S. dollar money market funds, thereby further invigorating crypto credit markets and driving up digital asset values.

In light of these trends, Bernstein has integrated the Aave token into its digital assets portfolio, replacing derivative protocols GMX and Synthetix. The Aave token has shown a remarkable 23% increase over the past 30 days, despite Bitcoin prices remaining flat or declining.

Looking ahead, the role of Bitcoin as an institutional asset class will be a focal point at Benzinga’s upcoming Future of Digital Assets event on November 19.

Bitcoin Could Tumble 15-20% If Fed Cuts Interest Rates As Expected: Analysts Lay Out The Bear Thesis

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