DeFi (decentralised finance) tokens have shown a relatively resilient trend compared with bitcoin over the past month, raising the possibility of a market rerating. With expanding institutional demand and improving token economics cited as positive factors, stablecoin proliferation and progress in U.S. crypto regulation were named as key variables that will shape market direction in the third quarter.

On July 10 (local time), blockchain media outlet Cointelegraph reported that asset manager Bitwise analysed in its latest report that "the DeFi sector may be quietly being re-rated by the market."

Bitwise data showed bitcoin fell about 22 percent in June, while its DeFi index, made up of tokens of major DeFi protocols, declined 4 percent. Bitwise said the relative strength was unusual given that DeFi assets are typically far more volatile than bitcoin. The firm said, "DeFi usually swings much more than bitcoin, and it is rare for it to hold up as well as it has this time," adding, "the market is barely paying attention to this change."

Bitwise pointed to a shift in the demand structure of the DeFi ecosystem as a backdrop to the change. It said stability is increasing as traditional financial institutions begin using DeFi protocols. The report said, "token economics are improving and the gap between usage and token value is narrowing," adding that institutions are building services on projects such as Morpho and Jupiter, and that Aave generated about $900 million in revenue over the past year.

Bitwise forecast the trend is likely to continue into the third quarter this year. The firm said, "we expect DeFi’s outperformance to continue in the third quarter," and analysed that the market often reflects such changes in prices with a delay.

Some also point out it is difficult to conclude that the current relative strength amounts to a recovery of the overall DeFi market. The Bitwise DeFi index includes assets based on market capitalisation weights, and about 61 percent of the current portfolio is concentrated in Hyperliquid’s HYPE token. HYPE has risen more than 160 percent so far this year, but other major components such as Uniswap, Ondo and Aave have posted double-digit declines since the start of the year. That means the index’s defensiveness depends heavily on a sharp rise in a specific token.

The overall amount of funds in the ecosystem is also still far from a full recovery trend. CryptoRank data showed DeFi total value locked this year fell about 40 percent, from about $115 billion to a level slightly above $70 billion. That was the result of the impact from last year’s crypto market correction. Bitwise said, however, that DeFi’s resilience has improved compared with before, noting the current decline is smaller than during the 2022 bear market.

U.S. regulation and stablecoin expansion were cited as key variables for the market ahead. Bitwise forecast that major companies will continue to announce stablecoin projects ahead of the GENIUS Act, a U.S. stablecoin regulatory law, taking effect in January 2027. It also saw it as a positive signal that stablecoin supply is being maintained steadily despite the recent market correction.

It also presented the CLARITY Act, a crypto market structure bill currently under discussion in the Senate, as a key variable that will determine market direction. Bitwise said the next three months are likely to be an important period for deciding whether the bill passes, but forecast it is unlikely to be handled before the November election.

The firm said, "If the bill passes, it could be an opportunity to confirm the bottom of this bear market," adding, "on the other hand, even if legislation is delayed, industry growth will continue under a pro-crypto U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) framework."

Bitwise said the recent relative strength in DeFi may be a signal reflecting expectations of institutional inflows and improved token structures. It said concentration in specific index components and the decline in total value locked remain, and forecast that the third quarter will likely involve a process of checking whether regulatory progress and stablecoin fund flows lead to an actual market recovery.