IN THIS ISSUE

🔭 Stablecoins in 2025
⚡️ Nakamoto optimizations
💰 USDh yield recap
📹 Hermetica Hangout: Reubs
📈 Weekly market review

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Stablecoins in 2025

2025 is poised to be a pivotal year for stablecoins.

A recent report from Coinbase Institutional shows stablecoins’ remarkable growth trajectory. In 2024, their market cap surged by 48%, reaching over $193 billion, with analysts projecting the sector could grow to nearly $3 trillion in the next five years.

The growth isn't just in market cap—stablecoins are demonstrating real utility. As of November 30, 2024, the stablecoin market had settled nearly $27.1 trillion in transactions, nearly three times the $9.3 trillion processed during the same period in 2023 and more than twice that of Visa. VCs like Chamath Palihapitiya predict stablecoins will be among the biggest business winners of 2025.

Nakamoto Optimizations

Even faster USDh transactions are on the horizon.

The Stacks block budget reset time has been reduced to 2 minutes as part of Nakamoto optimizations.

We’re just getting started. Make sure you buy USDh so you’re in early.

USDh Yield Recap

We saw the dip… and waved from 11% APY. Second week in, and the printers are still hot.

Let your assets earn while you rest!

Hermetica Hangout: Reubs

We spoke with LunarCrush this week - listen to the recording to find out how you can unlock crypto insights.

The next Hangout is coming up quickly on January 14th with Reubs, a community thought leader and the founder of STXTools and the memecoin Leo Coin. Join us as we discuss:

➕ The intersection of Bitcoin meme culture and stablecoins
💰 How meme liquidity impacts the crypto market
💥The role of meme coins like Leo Coin in the broader Bitcoin ecosystem

Follow the Hermetica X account and stay tuned. This is one you don’t want to miss!

Market Review

Bitcoin's price action faced a failed breakout and formed a lower high on the daily timeframe this week, rejecting the $102,000 level on Tuesday. The price bottomed out just above $91,000 following its sharp decline. Altcoins have underperformed Bitcoin over the past month. The total crypto market cap, excluding Bitcoin, peaked two weeks before Bitcoin on December 7th, and since then, it has recorded three lower highs compared to Bitcoin's two. Altcoins have experienced a total drawdown of 17.56%, while Bitcoin's decline stands at 12.37%.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $96,898

• 30-Day MA: $97,799

• 180-Day MA: $74,654

• 360-Day MA: $67,787

• 200-Week MA: $43,024

Moving averages, particularly the 7-day and 30-day MAs, often serve as key support levels duMarket volume has been subdued over the past three weeks due to the holiday season. The market's resilience will be tested in the last three weeks of January, as investment funds rotate assets within their portfolios. Bitcoin could benefit from these rotations, potentially resuming the bull market in mid-January. However, the expected recovery did not materialize this week, and Bitcoin remains in a clear monthly downtrend. Further downward movement is likely until the price decisively crosses above the 7-day and 30-day MAs and sustains that position for more than a week.

Key downside levels for Bitcoin to watch include $94,000, $92,000, $90,000, $88,000, $74,000, $72,000, $70,000, and $68,000. On the upside, resistance levels are at $98,000, $99,000, $104,000, $106,000, and $108,000.ring bull markets. Two weeks ago, price blew through the 7-day and 30-day MAs threatening the bull market uptrend. This bearish momentum was compounded by the 7-day MA crossing over the 30- day MA for the first time since October last week.

The holiday season put a damper on market volume the last 3 weeks.The test for this market will come in the last 3 weeks of January where investment funds will rotate assets in their portfolios. Since Bitcoin should benefit from these rotations the bull market might resume in mid-January, but if a recovery is not forthcoming the bull market may be delayed for several more months.

Bitcoin downside levels: $94,000, $92,000, $90,000, $88,000, $74,000, $72,000, $70,000, or $68,000.

The Bitcoin returns are as follows:

• 1 month: -8.65%

• 3 months: 46.15%

• 6 months: 51.58%

• 12 months: 99.45%

Bitcoin's trailing annual return currently stands at 99.45% and has been trending downward since early December. Since 2015, Bitcoin's average annual return has been 56%, making the current trailing 1-year return significantly above average. Trailing returns are expected to remain elevated until February 2024, provided no further rally occurs in the meantime.

Periods of above-average returns are often followed by below-average returns, and vice versa. Bitcoin experienced a gradual downtrend from the launch of the BTC ETF in Q1 2024 until Donald Trump's reelection on November 5th, 2024. The current above-average return alone should not be viewed as a market top. However, when combined with other metrics, it may indicate long-term market tops and bottoms.

BTC ETF Flows

Net BTC ETF inflows since last Friday totaled -$58.6 million. This week's net outflows normalized towards zero, a significant reduction from last week's high outflows of nearly $1 billion. The week was shortened due to markets being closed on Thursday for former President Jimmy Carter’s state funeral.

Volatility

Bitcoin's implied volatility (DVOL) is currently at 58.39%, placing it in the 33rd percentile relative to the average level over the past year. Since mid-November, DVOL has been oscillating between 55% and 65%. It has remained unaffected by intraday volatility, suggesting the current spot downtrend is orderly and not driven by large derivatives liquidations.

Market makers typically benefit from a return to the center of a long-term range, as their short option positions move further out of the money. DVOL could spike higher if Bitcoin's price breaks above $100,000 and sustains the level, but since such a breakout seems unlikely in the near term, DVOL is expected to remain relatively stable.

Funding Rates

In addition to low implied volatility, positive funding rates in a bearish environment indicate orderly price declines. Figure 5, taken on Wednesday, January 8th, during the steep spot market decline following the failed breakout above $100,000 on Monday and Tuesday, illustrates this point. Despite the rapid decline and the historical underperformance of Deribit funding rates compared to other exchanges, Deribit’s Bitcoin-margined perpetual funding rates remained positive or flat almost throughout. 

There is little evidence of cascading liquidations among non-retail traders, and instead, there seems to be a willingness to buy perpetual contracts during dips.

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 11.11% last week to 14.51% this week. 

The futures curve is in an inverted contango starting from the front week contract (January 17th) onward. While it appears to dip sharply from the front week to the front month, the curve is exceptionally flat this week, with only a 1.2% difference between the lowest and highest yielding maturities, down from 8.37% last week.

A steep downward-sloping contango suggests that demand for nearer maturities is outpacing supply and detaching from Bitcoin’s long-term APR. The more detached close maturities become, the more bullish the market is on near term price action. This structure is particularly bullish in the short term, as market makers use the front month to hedge short perpetual and spot positions during high demand periods.

This week’s very flat curve indicates minimal demand for leverage and a weak expectation for a rally in the coming weeks, compared to previous weeks. Despite the price decline, the futures curve remains positive and at a high plateau, reflecting a neutral market posture. Last week’s futures curve (Figure 8) suggested a bullish short-term bias, whereas today’s curve (Figure 7) indicates a neutral stance.

Macro

On December 18th, 2024, the Federal Reserve issued hawkish guidance, which markets interpreted bearishly. Jerome Powell described this month's rate cut as "a close call" and suggested only two 25 basis point cuts in 2025, half the number seen in 2024. Leading up to the decision, markets became complacent, reflected in multi-year lows in S&P 500 and U.S. Treasury volatility.

Following the FOMC news, traders overcorrected their expectations, causing a surge in market volatility. The implied volatility in equities (VIX) spiked to 28.43 from a low of 13.44 the previous week, while U.S. Treasury implied volatility (MOVE) rose slightly to 90.41 from a two-year low of 82.66. Over the past 20 days, equity volatility has reverted to pre-FOMC levels, settling at 19.03, whereas Treasury bond volatility has slightly increased, now at 99.73.

Notably, 30-year Treasury bond yields have surged significantly since their low on December 6th, rising 16% from 4.31% to 4.97%. Long-term rates are nearing highs last seen during the peak of the rate hiking cycle in October 2023. These elevated long-term rates suggest that traders expect the Fed to pause short-term rate cuts for an extended period.

Sincerely,
The Hermetica Team