IN THIS ISSUE

⛓️ The new multi-chain connection
🗓️ Hermetica New Year plans
💰 USDh yield recap
📹 Hermetica Hangout: LunarCrush
📈 Weekly market review

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The New Multi-Chain Connection

Multi-chain connections are live on Hermetica!

We made it even simpler to explore, buy, and stake USDh. 

Simultaneously connect on both Runes and Stacks using popular wallets like Xverse, LeatherBTC, and Asigna.

Hermetica New Year Plans

2025 is shaping up to be a year of growth, innovation, and even bigger milestones for Hermetica, and we couldn’t be more excited to have you by our side!

As we move into the new year, here’s a glimpse at what’s ahead:

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

USDh Yield Recap

First week of the year and already printing.

Start the year strong—let your USDh earn even while you sleep!

Hermetica Hangout: LunarCrush

Set your calendars for January 7th — the next Hermetica Hangout with LunarCrush is almost here! We’re sitting down with Joe, the Founder and CEO, to learn all about:

Follow the Hermetica X account and turn on notifications so you don’t miss a thing!

Market Review

Bitcoin reached all-time highs (ATH) of $108,350 on Tuesday December 17th and has since ranged between $94,000 and $98,000. Altcoins have fared much worse than Bitcoin in the last month but have seen some relief in the last week. The crypto total market cap, excluding Bitcoin, peaked two weeks before Bitcoin on December 7th and has drawn down 13.91% versus Bitcoin’s 10.66% drawdown.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $94,825

• 30-Day MA: $98,231

• 180-Day MA: $73,144

• 360-Day MA: $66,749

• 200-Week MA: $42,809

Moving averages, particularly the 7-day and 30-day MAs, often serve as key support levels during 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: -2.05%

• 3 months: 55.98%

• 6 months: 73.32%

• 12 months: 119.14%

Bitcoin's trailing annual return currently stands at 119.14% and has been flat since the start of December. Since 2015, Bitcoin's average annual return has been around 56%, the current trailing 1- year return remains significantly above average. This return will stay elevated until February 2024, assuming there is no further rally in the meantime.

Periods of above-average returns are typically 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 should not alone be seen as a market top. However, in combination with other metrics this return could point to longterm tops and bottoms in the market.

BTC ETF Flows

Net BTC ETF inflows since last Friday were -$0.946 billion. This week's outflows coincided with a shorter trading week due to markets being closed on New Year’s Day (Wednesday). Markets will also be closed next Thursday to honor the passing of former President Jimmy Carter, which may impact ETF volumes further.

Volatility

Bitcoin's implied volatility (DVOL) is currently at 59.49%, placing it in the 69th percentile of levels observed over the past year.

Since mid-November, DVOL has remained within a range of 55% to 65%, showing minimal movement even during significant price shifts. For instance, despite a more than 10% price decline between December 18th and December 22nd, DVOL only increased by 5%. It has since been relatively static as prices stabilized. Market makers generally benefit from DVOL moving back toward the center of a long-term range, as their short option positions move further out of the money. Unless there is a substantial breakout above $100,000 on high volume, DVOL is expected to remain within its current range.

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 from the front week contract (January 10th) onward. The curve dips sharply from front week to front month and then gradually declines to the recently launched December 2025 maturity. There is about an 8.37% difference between the lowest and highest yielding maturities, up from 1.82% 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. The more detached close maturities become, the more bullish the market is on near term price action. Despite the fall in prices the market remains in a bullish posture. Last week’s futures curve (Figure 7) had the most neutral of all recent futures curves. The reversion to a more bullish curve this week indicates that demand for futures leverage is returning.

Bullish Bitcoin futures curves are typically special inverted contangos where the front week/month has the highest APR, APR falls gradually every maturity after the front maturity, and APR remains positive along the whole curve. The future’s curve from this week (Figure 6) is a good example of a bullish curve. This is the most bullish curve in the short term because market makers use the front month to hedge short perp and spot positions during periods of high demand.

Funding Rates

Two weeks ago, following the last FOMC meeting, funding rates did not respond as bearishly as one might expect given the 10% down move in 3 days. Funding rates (even on Deribit which tends to have more negative rates than other markets) were mostly flat during down moves while surging during relief rallies. Derivative traders were either already short going into the down move or felt confident enough to bid up perps when there was a sign of an upward reversal. Traders do not see to be panicking and are using this macro-driven down move as a buying opportunity.

Macro

On Wednesday, December 18th, 2024, the Federal Reserve issued hawkish rate guidance during the Federal Open Market Committee (FOMC) meeting, which markets interpreted negatively. Fed Chair Jerome Powell described the decision to cut rates this month as “a close call” and indicated that future rate cuts might be limited. Powell projected only two 25-basis-point rate cuts for the upcoming year, half the number implemented in 2024.

Leading up to the FOMC meeting, markets had become complacent, as evidenced by multi-year lows in volatility for both the S&P 500 and U.S. Treasury markets. Following the FOMC announcement, traders sharply adjusted their expectations, leading to a surge in market volatility. The implied volatility for equities (VIX) spiked to 28.43 from 13.44 the prior week, while U.S. Treasury implied volatility increased modestly to 90.41 from a two-year low of 82.66.

Over the holiday period, equity volatility has been reverting to its pre-FOMC lows, while Treasury bond volatility has seen a slight uptick. Current levels for equity and bond volatility are:

• Equity Implied Volatility (VIX): 17.92

• Treasury Bond Implied Volatility (MOVE): 96.67

Sincerely,
The Hermetica Team