IN THIS ISSUE

🛡️ USDh Funds Secure
🪙 Custodian attestations: February
💰 USDh yield recap
🔶 sBTC cap filled
☎️ Hermetica Hangout: Rozar
📈 Weekly market review

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USDh Funds Secure

Last week, Bybit was hacked for over $1.3B in ETH — a stark reminder that where assets are stored matters.

USDh backing assets were never at risk. From day one, we chose Off-Exchange Settlement (OES) with Copper and Ceffu, ensuring:

When the attack happened, we immediately reduced all Bybit exposure to zero.

Learn more about Hermetica’s security mechanisms - a small part of our security-first culture.

Custodian Attestations: February 2025

The February 2025 custodian attestation report from all integrated custodians is now available, confirming that all assets backing USDh remain securely held off-exchange within institutional custody solutions.

In summary, as of the snapshot time:

Read the attestations from Copper and Ceffu and see the full breakdown of Bitcoin backing USDh.

sBTC Cap Filled

The increased sBTC cap has now reached its full capacity of 3,000 BTC in less than 24 hours, following a recent 2,000 BTC increase. Demand for Bitcoin’s most decentralized and trust-minimized L2 asset on Stacks is accelerating—and for good reason.

sBTC is a fully programmable Bitcoin asset, unlocking new ways to put BTC to work. With sBTC, you can:

 The DeFi trade loops are coming online. Are you ready?

USDh Yield Recap

If you staked USDh this week—congrats, you just got paid 22% APY.

If you didn’t… well, now’s your chance.

Stake now or keep watching from the sidelines. Your call.

Hermetica Hangout: Rozar

This week, we hosted Rozar, community leader and founder of Charisma, for a deep dive into Bitcoin culture, community, and the future of DeFi.

If you missed it, catch the recording with one of the most active builders in the space.

That’s not all—Jakob, our Founder & CEO, spent time on X sharing USDh alpha, how it works, and how you can maximize your holdings:

Follow our X and turn on notifications to get ready for the next Hangout.

Market Review

Bitcoin tumbled this week, dropping from last Friday’s high of $99,000 to a low of $78,000 this morning. This marks one of Bitcoin’s most significant weeks since the U.S. election, as it broke below the key $89,000 support level. With this breakdown, Bitcoin now risks further selling pressure toward the next major support at $67,000.

Market carry rates (including funding rates, basis spreads, and options premiums) have been highly volatile. Bitcoin funding rates remained positive for most of the week, except for two notable dips: one early this morning and another on February 23rd, when they briefly turned sharply negative. The equal-weighted average basis spread sits near 8%, slightly lower than at the start of the week, while basis volatility has increased. Meanwhile, Bitcoin implied volatility saw the biggest shift, with DVOL surging off an eight-month low on Wednesday, February 26th.

Altcoins also took a hit. The aggregated altcoin market cap plunged from $1.25T last week to $1.05T, briefly touching $1T this morning. Bitcoin dominance fell by 1% as Bitcoin’s decline started catching up to the broader crypto market’s losses.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $89,175

• 30-Day MA: $95,761

• 180-Day MA: $84,422

• 360-Day MA: $74,482

• 200-Week MA: $44,460

BiBitcoin's USD price has fallen below the long-term 180-day (6-month) moving average (MA) for the first time since October 2024, signaling increased bearish momentum. Currently, Bitcoin is trading 8% below its 7-day MA and 14% below its 30-day MA, reinforcing the sharp downturn over the past week.

Despite the decline, Bitcoin remains above the 1-year (360-day) and 200-week MAs. However, if the price continues to slide, the 1-year MA could be tested in the coming weeks, with firmer support around $67,000. Bitcoin will remain in a downtrend until it reclaims both short-term moving averages and the 1-year MA from below.

This week, Bitcoin broke multiple key levels on its way down to $82,000, where it currently sits. Along the way, Bitcoin established local 4-hour lows at $86,000, $82,500, and $78,500. These levels now serve as key resistance, with the first two needing to be reclaimed to reverse the current downtrend.

Key downside levels for Bitcoin to watch include $82,500, $78,500, $76,000, $67,000, & $65,000. On the upside, levels are $109,500, $105,000, $102,000, $99,500, $98,000, $96,000, $92,000, $89,000, & $86,000.tcoin's price is above all long-term moving averages (MAs) and the short-term 7-day MA but remains slightly below the 30-day MA. For Bitcoin to confirm an uptrend, it must move above both short-term MAs. This week's upward movement suggests some demand for long positions, with the key test being whether price can break above the 30-day MA on high volume in the coming days.

Key downside levels for Bitcoin to watch include $98,000, $96,000, $92,000, $89,000, $76,000, $74,000, $72,000. On the upside, levels are $109,500, $105,000, $102,000, $99,500.

The Bitcoin returns are as follows:

• 1 month: -18.33%

• 3 months: -12.23%

• 6 months: 47.69%

• 12 months: 38.19%

Bitcoin's annual trailing return dropped sharply from an above-average 91.71% last week to a below-average 38.19% this week. Since 2015, Bitcoin's average annual return has been 56%, meaning the current 1-year trailing return is now approximately 30% below the long-term average.

This steep decline occurred because, one year ago, Bitcoin surged from $51,000 to $61,000 during this week, whereas this year, it has fallen from $96,000 to $84,000. Trailing annual returns serve as an important long-term indicator of whether Bitcoin is overbought or oversold.

Liquidations

Bitcoin long liquidations totaled $3.36 billion across all exchanges this week. While elevated, liquidations were not significantly higher than other notable periods, such as the first week of February or the third week of December. Despite the decline in prices, the sell-off has been relatively slow and orderly, likely giving market participants time to manage risk and avoid more severe liquidations.

BTC ETF Flows

Net BTC ETF outflows totaled $2.77 billion since last Friday, the largest weekly outflow in Bitcoin ETF history. Tuesday saw a record-breaking $1.139 billion in net outflows—the largest single-day outflow ever. The sharp outflows this week were likely driven by a combination of TradFi market makers unwinding CME basis trades and profit-taking from pre-election Bitcoin bets.

Volatility

Bitcoin's implied volatility (DVOL) currently sits at 54.2%, after peaking at 59.4% early Friday morning. It is now in the 33.5th percentile relative to the past year, a sharp increase from last week’s exceptionally low 2.7th percentile.

For most of the past eight months, DVOL has ranged between 50% and 70% and remains near the lower end despite this week’s uptick in volatility. Historically, DVOL spikes when a breakout—either up or down—becomes likely. Brief spikes occurred when Bitcoin hit a new all-time high on Inauguration Day, during the Nvidia market crash, and amid the tariff scare, but each was followed by a new low in implied volatility.

This week stands out as DVOL has trended upward daily since February 25, peaking today. The increase began as Bitcoin approached the $91,000–$89,000 range—a key level where options market makers would start to incur losses. Market makers, who typically short volatility, structure positions around certain price levels. When prices break down, they may cease selling options and instead hedge risk by buying back options or using other Bitcoin derivatives.

Basis Spread

The basis spread, or the price difference between a futures contract and its spot price, remains positive across all maturities. The average basis spread decreased slightly from 8.86% APR last week to 8.03% APR this week, despite significant price declines. The average basis spread for February ended 2.74% APR lower than where it started the month.

The futures curve is in a parabolic contango, with the front-week contract (March 7th) yielding the highest APR, followed by December 2025, the longest maturity contract. Despite the curve’s distorted shape, it remains relatively flat. Nominally, there is a 0.79% spread between the lowest and highest-yielding maturities, down from 3.53% last week.

The current futures curve indicates a bullish near-term and long-term outlook, but a bearish mid-term outlook, compared to the curves observed in recent weeks.

An upward-sloping normal contango—where the front part of the curve is below later maturities—signals weak demand for spot buying. In contrast, the futures curve from a month ago (Figure 7) showed a steep downward-sloping contango, indicating high demand. The current curve suggests strong demand from market participants to go long in the near term, likely due to a recent local low in price, but also indicates low demand to go long through Q2. This implies that any relief rally is unlikely to lead to a sustained upward trend into price discovery until later this year.

The ideal futures curve is a downward-sloping contango, where demand for closer maturities outstrips the supply market makers can access in the short run. Market makers use front-month futures to hedge short or current-duration assets, such as perpetuals or spot, allowing them to borrow and sell more spot to balance the market while maintaining delta neutrality. Therefore, the higher the basis spread for front maturities relative to distant maturities, the more bullish the market appears in the near term.

Macro

Market action this week suggests distress, though the cause remains unclear. Equity market volatility has risen after normalizing around 15%, with the VIX climbing without an obvious catalyst since December’s FOMC meeting.

President Trump has announced a 25% tariff on goods from Canada, Mexico, and the EU, set for March 1st. If the selloff were tariff-related, price movement would likely be quicker. Instead, the market is experiencing a slow decline, mainly focused on the "Magnificent 7" stocks, possibly due to equity traders unwinding their positions.

Since the December FOMC meeting, 30-year Treasury bond yields have rallied 16%, rising from 4.31% to 4.97%. Yields peaked on January 10th and have since fallen to 4.53%. While rates remain elevated compared to their December lows, they are on a downward trend. Capital flight into U.S. Treasury bonds on Monday and Tuesday this week also coincided with market distress.

Both the VIX (equity implied volatility) and the MOVE (Treasury bond implied volatility) indices have risen this week from long-term lows of 15.80 and 86.26, respectively, to current levels of 21.23 and 96.27.

Sincerely,
The Hermetica Team