IN THIS ISSUE

💵 Stablecoin adoption continues
🔶 sBTC deposit cap
💰 USDh yield recap
💭 Share your feedback
☎️ Hermetica Hangout: EasyA
📈 Weekly market review

Like what you see? Join our exclusive, ever-growing community on Discord and take part in future product launches:

Stablecoin Adoption Continues

Stables continue to see adoption worldwide.

Yesterday, Federal Reserve Governor Christopher Waller expressed his support for stables’ role in strengthening the U.S. dollar's position as the global reserve currency.

Waller emphasized that stablecoins could open up new payment possibilities and further integrate the dollar into digital financial systems, reinforcing its central role in global markets.

sBTC Deposit Cap

The sBTC cap is expected to be lifted this month after launching with a 1,000 sBTC cap last year.

This is your reminder to  supply your sBTC on Zest, borrow USDh, and then stake USDh to earn up to 25% APY.

Learn more in our guide and borrow USDh on Zest to get started.

USDh Yield Recap

USDh stakers locked in 13% APY this week. It’s a shift from the highs, but let’s be real, 13% is still a strong return.

The printers are running, and the yields are stacking. If you haven’t staked yet, now’s the time to jump in.

Share Your Feedback

At Hermetica, we're always working to enhance our platform and your experience.

Please take a moment to complete our short feedback form—your insights are invaluable in shaping future improvements. 

Hermetica Hangout: EasyA

This week, Visions.btc  joined us to talk about Velar, the .btc campaign, Faktory.fun, and Return to Ape campaign. If you missed it, make sure to check out the conversation!

We’ve got another exciting session coming up next week with EasyA where we’ll talk about how you can learn about Web3 and earn. We’ll break down how EasyA makes blockchain development accessible, how top universities and communities are leveraging it.

Don’t miss out! Follow Hermetica on X to stay updated.

Market Review

Bitcoin plunged 10% within hours late Sunday into early Monday UTC, triggering a broader cryptocurrency sell-off. Ethereum dropped over 30% in two hours, while Solana fell nearly 15%. Speculative assets like Cardano ($ADA) saw declines of 40% or more.

The crash coincided with the opening of global currency markets in Australia and East Asia, where the US dollar strengthened sharply, particularly against the Canadian dollar ($CAD) and Mexican peso ($MXN). This followed discussions over a 25% tariff on Canadian and Mexican goods, set to take effect February 4. The announcement had been made the previous week but was largely dismissed by markets until the weekend, prompting a sharp downturn in traditional finance (TradFi) markets as trading resumed.

By Monday afternoon, the tariff deadline was pushed to March 1 after Canada and Mexico agreed to anti-drug enforcement measures, including financial and troop commitments. Internal reports suggest these concessions were previously discussed in late 2024, with the abrupt tariff threat serving as a negotiating tactic. The delay keeps pressure on Canada and Mexico, reinforcing the U.S. position in ongoing trade talks.

More tariff-related market volatility is expected during negotiations, though future reactions may be more muted. Despite Monday’s initial panic, $CAD and $MXN quickly recovered to last week’s range. Equity markets also rebounded, while crypto remained significantly weakened.

Crypto markets were already fragile, having trended downward since Trump’s inauguration. Pro-crypto regulatory changes had been priced in beforehand, and without new catalysts, some traders took profits. The tariff shock triggered a cascade of liquidations, particularly in over-leveraged altcoins, many of which lack institutional support or liquidity. Bitcoin, by contrast, continues to attract long-term investor interest.

Currently, Bitcoin is trading at $97,663, near its mid-November range, down 10.8% from its January 20 ATH—faring better than altcoins, which have declined 21.55% from their peak.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $98,323

• 30-Day MA: $100,293

• 180-Day MA: $80,444

• 360-Day MA: $72,254

• 200-Week MA: $43,898

Bitcoin is trading above all long-term moving averages but remains below the short-term 7-day and 30-day MAs. A confirmed uptrend would require a price crossover above these levels. Given this week's market turbulence, an immediate recovery is unlikely, but a return to previous highs within the next few weeks remains possible.

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

The Bitcoin returns are as follows:

• 1 month: 1.70%

• 3 months: 26.11%

• 6 months: 64.33%

• 12 months: 113.14%

Bitcoin's trailing 1-year return is 113.14%, nearly double its 56% average annual return since 2015. Barring a further rally, this elevated return will persist through late February 2025.

Historically, above-average returns are followed by below-average periods. Bitcoin trended downward from the BTC ETF launch in Q1 2024 until Trump’s reelection on November 5, 2024. While high returns alone don’t signal a market top, they can be a useful indicator when combined with other metrics to identify long-term price peaks or troughs.

BTC ETF Flows

Net BTC ETF inflows since last Friday totaled $351.1 million, tempered by a $234.4 million outflow on Monday.

Volatility

Bitcoin's implied volatility (DVOL) stands at 53.11%, in the 22.3rd percentile relative to the past year’s average. For most of the last seven months, DVOL has ranged between 50% and 70% and is now at the lower end of this range. Brief spikes occurred on Inauguration Day (ATH breakout), during the Nvidia market crash, and the recent tariff news, but each was followed by a new low in implied volatility.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all maturities. The average basis spread fell from 10.77% APR last week to 7.92% APR this week. The basis spread ended the first week of February 2.85% APR below where it started the week, marking the first time Bitcoin’s average basis spread fell below 10% since the election.

The futures curve is in a normal contango from the front week contract (February 14th) onward. The futures curve is relatively flat across the whole curve with the front month (February 28th) and back month (March 28th) contracts being below all later maturities. There is a 5.65% spread between the lowest and highest yielding maturities, up from 0.91% last week.

The current futures curve is neutral/bearish relative to recent weeks. An upwards sloping normal contango, or where the front part of the curve is below other maturities, signals weak demand for spot buying. By contrast, the futures curve from three weeks ago (Figure 8) was in a steep downward sloping contango.

A downward sloping contango indicates that demand for closer maturities is outstripping the supply market makers can obtain in the short run. Market makers use front month futures to hedge short/current duration assets, such as perp or spot, so they can borrow and sell more spot to balance the market. Thus, the higher the basis spread for front maturities relative to distant maturities, the more bullish the market is in the near term.

Macro

On January 29, 2025, the Federal Reserve held its first FOMC meeting of the year, pausing rate cuts while signaling a dovish stance. Chair Jerome Powell reassured markets that rate hikes are off the table for 2025, easing concerns raised by December’s hawkish guidance. The Fed is expected to hold rates steady for several meetings before the next cut, with signals emerging as new economic data is considered.

President Trump has repeatedly called for lower interest rates, though the Fed remains independent. Market expectations for rate cuts have increased, with SOFR markets now pricing in at least two 25 bp cuts this year.

Market volatility has stabilized since the December FOMC shock, despite mild fluctuations on January 13 (Inauguration), January 25 (Deepseek r1 release), and February 3 (tariff scare). Treasury yields spiked 16% post-December FOMC, peaking at 4.97% on January 10 before easing to 4.65%. The dovish Fed tone reinforces a downward trend.

Equity and bond volatility indices (VIX and MOVE) have declined since Wednesday’s meeting, now at 15.50 and 93.90, respectively.

Sincerely,
The Hermetica Team