IN THIS ISSUE

🔒 Fordefi live on Hermetica
🛡️ USDh pools remain safe
🗞️ What’s new in Bitcoin DeFi 
💰 USDh yield recap
☎️ Hermetica Hangout: Post-Vegas Community Call
📈 Weekly market review

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USDh Pools Remain Safe

Bitcoin 2025 just ended and it’s clear Bitcoin adoption is scaling fast, and the rails for BTCfi are locking into place.

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You have a year to get ready for the next Bitcoin conference in Vegas - what are you waiting for?

USDh Yield Recap

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Hermetica Hangout: Post-Vegas Community Call

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Market Review

Bitcoin has been flat week-over-week at approximately $104,000, with high realized volatility in the last two days. Derivatives rates (funding rates, basis spread, options premium, etc.) fell significantly, with implied volatility down to its lowest level in a year, perpetual futures (perps) funding rates turning negative, and futures basis spreads falling to levels not seen since March lows.

Bitcoin implied volatility (DVOL) made an annual low of 41.45% this morning, following the recent failed ATH breakout.

The futures curve is in a normal contango, with the average equal-weighted basis spread declining across the curve by about 1.26%. When the front end of the curve is below more distant maturities, this reflects weak spot demand.

Perp funding rates were close to zero all week, except Thursday evening when they turned negative, levels not seen in over a month. Prices dropped late Thursday and approached the $100,000 level, increasing pressure on leveraged perp positions.

Aggregated altcoin market caps fell week-over-week from $1.16T to $1.13T. Bitcoin dominance rose 0.54% this week and is close to breaking its short-term downtrend after peaking on May 7th. Bitcoin dominance remains in a long-term, multi-year uptrend. In May, there was a correction in dominance, but like previous corrections over the past two years, it did not reverse the broader trend.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $104,494

• 30-Day MA: $105,580

• 180-Day MA: $95,008

• 360-Day MA: $81,520

• 200-Week MA: $48,212

Bitcoin's price is below all key short-term moving averages (MAs) this week. As of now, Bitcoin is trading 0.68% below its 7-day MA and 1.70% below its 30-day MA, while still holding 9.23% above the 180-day MA. This marks the first meaningful correction since April 8th.

Historically, uptrends tend to continue as long as price does not remain below both short-term MAs for an extended period. The break below short-term MAs shortly after reaching all-time highs reflects a shift in momentum and warrants close monitoring.

Trend Following

Returns for a Bitcoin 7-day and 30-day long trend following portfolio are now down 6.29% from January’s ATH. A month ago, the portfolio was down 22.99% marking the largest drawdown in long oriented trend following portfolios since late 2024 where they drew down nearly 25%.

The recent drawdown in long-trend strategies was a sign of deleveraging across crypto markets as traders exited long Bitcoin carry trades. Bullish catalysts from mid-April onward reversed the declines in trend portfolios. Traders began re-leveraging and re-entering the Bitcoin carry trades they exited 3 months prior. Now that process of re-leveraging seems to have ended and trend portfolio returns are stagnating.

BTC ETF Flows

Net outflows for the week totaled $700M, marking a $1.3B reversal from the prior week's $683M in net inflows. For the first time in several months, Ethereum ETFs saw net inflows ($326M) while Bitcoin ETFs experienced net outflows.

Volatility

Bitcoin’s implied volatility (DVOL) has declined to 41.45%, its lowest level in the past year. Earlier in May, DVOL spiked as Bitcoin’s price approached a new all-time high. However, DVOL and price quickly retraced into previously established trading ranges.

Low implied volatility reflects reduced demand for derivatives leverage and limited hedging pressure on market makers. In mid-May, market makers briefly faced directional exposure as options moved closer to the money, but that pressure has since eased. DVOL has returned to annual lows as those positions moved safely out of range.

Like many commodities, Bitcoin tends to experience volatility expansion during both uptrends and downtrends. In contrast, sideways price action tends to compress volatility, as we’re witnessing now.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, remains positive across all maturities. The average (equal-weighted) basis spread declined 1.26% this week, from 6.92% APR to 5.56% APR, and has fallen 3.59% over the past two weeks, from 9.15% to 5.56%. This represents a nearly 40% decline in basis yield over that period.

The futures curve remains in normal contango, with the front-week contract (June 13th) yielding 4.67%, the lowest on the curve, and maturities rising gradually through December 2025 at 6.63%. After September 2025, the curve flattens considerably.

The spread between the lowest and highest yielding maturities narrowed to 1.96%, down from 2.55% last week.

Market makers frequently utilize front-month contracts to hedge spot exposure, while speculative traders are more active at the long end of the curve. The recent decline in front-end yields reflects reduced demand for spot and short-duration options.

The ideal futures curve in a bullish market is a downward-sloping contango, where demand for near-term maturities exceeds short-term supply. The January curve (Figure 8) reflected such conditions, with elevated front-end premiums signaling strong spot interest.

Front-month futures are typically used to hedge short-duration exposures such as spot, perps, and near-dated options. Concentrating activity in these maturities allows market makers to manage larger books while maintaining delta neutrality. Higher front-end APRs relative to distant maturities generally indicate stronger short-term bullish sentiment.

Macro

Market sentiment strengthened last month after the United States and China agreed to reduce tariffs and engage in 90 days of negotiations; Bitcoin’s price rallied back to its all-time high, leaving its next direction, whether a sustained bull market or the end of this cycle, highly uncertain. In previous cycles, an ATH breakout often presaged either a prolonged rally, as in 2017 and early 2021, or a terminal top, as in late 2021. The determining factor now will be the evolving macroeconomic environment.

In late May, thirty-year yields briefly topped 5.15%, their highest level since the Federal Reserve completed its last rate-hike cycle in 2023; by early June, they had eased slightly to about 4.94%, but remained elevated. As long-term rates climbed, the Federal Reserve maintained its policy stance: at the May 7 FOMC meeting, Chair Jerome Powell held the federal funds rate steady and kept quantitative tightening at $5 billion per month. Powell reiterated that rate cuts will be deferred and signaled readiness to tighten further if inflation accelerates. By contrast, the European Central Bank cut rates by 25 basis points in both May meetings, and other major central banks (the Bank of England, the People’s Bank of China, and the Swiss National Bank) also eased.

The Bank of Japan (BOJ) has diverged from the broader trend among developed, net-exporting countries by belatedly initiating short-term interest rate hikes. Having started this tightening cycle significantly later than its peers, Japan now finds itself behind the curve despite also facing potential deflationary pressures stemming from recent U.S. tariff policies. In recent weeks, Japan’s long-term interest rates and the value of the yen have been climbing, driven by a shift among firms seeking to exit the U.S. dollar in favor of a perceived safer foreign currency. This externally driven appreciation of the yen has triggered a wave of position unwinding among USD/JPY carry traders, intensifying both the U.S. bond market selloff and yen strength. Notably, the USD/JPY pair appears to have formed a triple bottom this week, though it will take several more weeks of data to determine whether the yen's appreciation trend is likely to persist or reverse.

The Dollar Index ($DXY), an index of the US dollar against a basket of major foreign currencies, has fallen to 99.21. Meanwhile, 30-year U.S. Treasury yields peaked at 5.15% on May 22, marking the highest level since the conclusion of the Federal Reserve’s rate-hiking cycle in 2023. This rate also exceeded levels seen during the SOFR swap basis trade dislocation last month. Although yields have since eased slightly to 4.94%, they remain historically elevated.

The combination of rising long-term Treasury yields and a weakening dollar suggests that foreign investors may be reducing their exposure to U.S. assets. Historically, the $DXY and U.S. Treasury yields have shown a strong positive correlation. This relationship is illustrated in Figure 9, which highlights the close alignment between movements in the dollar’s relative value and Treasury bond yields.

In parallel, the rise in Japanese government bond yields alongside the unwinding of the yen-dollar carry trade has led some investors to scale back their exposure to U.S. bonds and reallocate capital into yen-denominated assets. This shift has added downward pressure on the U.S. dollar. However, developments in Europe may help counterbalance these effects. With the European Central Bank (ECB) now entering an easing cycle, the interest rate differential between the U.S. and the eurozone has widened. As a result, the long dollar / short euro carry trade is becoming increasingly attractive, potentially absorbing some of the selling pressure on the dollar.

Equity implied volatility (VIX) and Treasury bond implied volatility (MOVE) both spiked following tariff announcements, but have since reverted to long-term averages. As of early June, VIX stood near 17.13 (down from 18.9 the previous week) and MOVE around 94.65 (up from 92.67), reflecting a market that has largely absorbed recent shocks. Over the past year, Bitcoin’s implied volatility has fallen to a low of approximately 41.45%. In May, a brief rise in volatility forced market makers into hedges, briefly becoming net buyers of Bitcoin options, but with prices now back near established ranges, implied volatility has compressed again.

Sincerely,
The Hermetica Team