IN THIS ISSUE

📰 Big USDh news coming soon
🍊 300K USDh borrow cap on Zest
💰 USDh yield recap
☎️ Hermetica Hangout: Community call
📈 Weekly market review

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Big USDh News Coming Soon

We told you that this newsletter came with exclusive updates!

We're excited to share that a major liquidity infusion is in the works for USDh on Stacks. The official details will be released so stay tuned.

All we’ll say right now is that you should stake your USDh soon if you want to maximize your gains.

300K USDh Borrow Cap on Zest

Everyone wants a slice of USDh yield.

Zest has increased the USDh borrow cap from 200K to 300K — a 50% increase! The USDh borrow cap has increased 500% since it was first listed in November (with more increases on the way).

That means even more opportunities to earn:

🔸 Borrow USDh against sBTC and stake on Hermetica to earn up to 25% APY
🔸 Supply USDh on Zest to earn supply APY and Points

Get started on Zest today for new ways to earn.

USDh Yield Recap

Bitcoin’s up, our APY is at 21%, and let’s just say things are about to get a whole lot more exciting for USDh.

Safe to say, it’s always a good time to be staking USDh.

Hermetica Hangout: Community Call

Last week, we hosted Reubs on the Hermetica Hangout to explore if memes and Bitcoin culture coexist. Missed it? Catch up on the recording, it’s worth a listen!

This week, we’re shifting gears with Jakob, our Founder and CEO, to talk about the upcoming liquidity and what’s next for Hermetica. Jakob will be joined by other founders building on Bitcoin, offering insights you won't want to miss.

Set your reminder and join the conversation. Follow the Hermetica X account to stay updated!

Market Review

Bitcoin price action is recovering after a failed breakout and lower high on the daily time frame last week. After bottoming out just above $89,200, Bitcoin has bounced back to $102,000.

While altcoins have underperformed Bitcoin over the past month, they are now rallying stronger, fueled by a New York Post article speculating that the U.S. government’s "Bitcoin Strategic Reserve" (BSR) could include altcoins from U.S.-based teams. This has driven up prices for certain U.S.-based altcoins, including Solana and XRP.

Both Bitcoin and the crypto total market cap (excluding Bitcoin) have made higher highs after a month of lower highs. However, altcoins are still experiencing a 7.58% drawdown compared to Bitcoin's 3.04% decline.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $97,650

• 30-Day MA: $96,588

• 180-Day MA: $75,896

• 360-Day MA: $68,884

• 200-Week MA: $43,222

Moving averages, especially the 7-day and 30-day MAs, are key support levels in bull markets. Over the past month, prices have pierced both the 7-day and 30-day MAs three times, threatening the multi-month bull trend. However, in the last three days, prices have recovered above all moving averages, signaling a potential return to price discovery. This bullish momentum was further reinforced by the 7-day MA crossing above the 30-day MA from below for the first time since the bear market began a month ago.

Key downside levels for Bitcoin to watch include $99,000, $98,000, $94,000, $92,000, $90,000, $89,000, $88,000, $74,000, $72,000, $70,000, or $68,000. On the upside, levels are $104,000, $106,000, $108,000.

The Bitcoin returns are as follows:

• 1 month: -0.31%

• 3 months: 46.29%

• 6 months: 46.93%

• 12 months: 142.47%

Bitcoin’s trailing annual return is currently 142.47%, marking a more than 40% increase over the past week. Since 2015, Bitcoin’s average annual return has been 56%, making the current return nearly three times higher than the historical average. Trailing annual returns are expected to remain elevated through February 2024, assuming there is no significant rally in the meantime.

Periods of above-average returns are often followed by below-average returns, and vice versa. Bitcoin saw a gradual downtrend from the BTC ETF launch in Q1 2024 through Donald Trump’s reelection on November 5th, 2024. While the current above-average return shouldn’t be taken as an automatic market top, it could signal potential long-term turning points when considered alongside other metrics.

BTC ETF Flows

Net BTC ETF inflows since last Friday totaled $737.9 million, with flows normalizing this week to pre-holiday levels. Two weeks ago, net outflows were nearly $1 billion, followed by $58.6 million last week, reflecting near-flat movement. This week marks the first full business week of the year, with traditional finance markets open every day.

Volatility

Bitcoin’s implied volatility (DVOL) is currently at 61.63%, placing it in the 80.7th percentile relative to the average level over the past year.

Since mid-November, DVOL has remained in a range between 55% and 65%. It has shown little sensitivity to intraday volatility, suggesting that both the recent downtrend and upward reversal have been orderly, without significant liquidations in derivatives markets. Ether liquidations slightly outpaced Bitcoin liquidations this week, despite Bitcoin’s larger market cap and trading volume.

Market makers’ positions typically benefit from moving back to the center of a long-term range since their short option positions will move farther out of the money. DVOL has approached the top of the recent range as price passed $100,000 increasing the probability of an implied vol upward breakout soon.

Funding Rates

In addition to low implied volatility, positive funding rates in a bearish environment suggest orderly price declines. Despite the rapid downturn over the past few weeks and the usual underperformance of Deribit’s funding rates relative to other exchanges, Deribit’s Bitcoin-margined perpetual funding rates stayed positive. There is little evidence of cascading liquidations among non-retail traders, with hints at a continued appetite for buying perpetual contracts on dips, especially this week.

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 12.01% last week to 14.17% this week. The basis spread has been roughly flat since the start of the month.

The futures curve is in an inverted contango from the front week contract (January 24th) onward. The futures curve dips sharply from front week to front month then gradually declines and flattens out. There is an 8.93% difference between the lowest and highest yielding maturities, up from 1.2% last week.

A steep downward sloping contango indicates that demand for closer maturities is outstripping supply and becoming detached from Bitcoin’s long run APR. This occurs because market makers use the front month futures (especially on Deribit) to hedge short perp and spot positions during periods of high demand. The more detached close maturities become the more bullish the market is on near term price action.

Macro

On Wednesday, December 18, 2024, the Federal Reserve delivered hawkish rate guidance during its monthly Federal Open Market Committee (FOMC) meeting, leading to a surge in market volatility. The Equity Implied Volatility (VIX) spiked from 13.44 to 28.43, while Treasury Bond Implied Volatility (MOVE) increased modestly from 82.66 to 90.41. Over the past month, the VIX has reverted to pre-FOMC levels at 15.73, while MOVE has risen slightly to 92.72.

Notably, 30-year Treasury bond yields have climbed significantly since December 6, rising from 4.31% to a peak of 4.97%, before retreating to 4.83%. Long-term rates remain near levels last seen during the October 2023 rate hike peak.

The Treasury bond market may be approaching a multi-year top in long-term rates. Heavily indebted U.S. companies face unsustainable refinancing rates with benchmark Treasuries above 4%. The Fed may preempt a recession by cutting rates soon or delay until a recession compels action later in the year. Consequently, Treasury yields across all maturities are likely to fall, with the curve steepening as short-term rates decrease more sharply than long-term rates.

Sincerely,
The Hermetica Team