IN THIS ISSUE

🏦 USDh live on Copper
🛡️ Connect with Asigna
🎥 Jakob talks Bitcoin-backed stables
💰 USDh yield recap
☎️ Hermetica Hangout: Brotocol
📈 Weekly market review

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USDh Live on Copper

USDh is now listed on Copper.

Copper is one of the industry’s leading digital asset custodians, trusted by institutions around the world.

USDh is now a supported asset within Copper’s platform. Institutional clients can custody and incorporate USDh in their portfolios more securely than ever.

Connect with Asigna

Asigna is now available on Hermetica. After all, it only makes sense that a security-first company allows for mutli-sig.

Enjoy safer asset management and secure interaction with Bitcoin apps through Asigna’s multi-sig smart wallet.

Experience trusted protection as we build security-first infrastructure, making it even easier to access and manage USDh with confidence.

Jakob Talks Bitcoin-Backed Stables

This week, Jakob, our Founder & CEO, was hosted by Nugget’s News for a deep dive into Bitcoin-backed stablecoins and the future of USDh.

They covered the growth of USDh, what makes it different, and why Bitcoin is finally ready for stable, scalable financial tools.

Jakob also dropped some alpha on what’s ahead on the roadmap for Hermetica and Bitcoin DeFi. Now’s a good time to catch up.

USDh Yield Recap

At the first Bitcoin bank, we don’t do waiting rooms, paperwork, or lunch breaks.

What we do is earn USDh stakers yield. While everyone else was busy refreshing their charts and arguing with influencers, USDh stakers earned 16% APY.

Turns out, the real alpha was a savings account that actually saves.

Hermetica Hangout: Brotocol

This week, we hosted the Brotocol team for a deep dive into how they’re building a native DeFi layer for Bitcoin. We explored tools like BroBridge, BroSwap, and BroPay, and how they aim to bring stablecoins, swaps, and payments directly into Bitcoin wallets.

Stay tuned for another Hangout next week.

Market Review

Bitcoin stalled this week after a sharp, parabolic rise late last week. The rally appears to have been driven by the market front-running the weekend announcement of a tariff pause.

Derivatives markets were mixed where options premiums declined, perpetual futures funding rates remained positive but fell from last week's highs, and the long end of the futures curve moved higher.

Bitcoin implied volatility (DVOL) is now at a one-year low of 43.13%, reflected in historically low options pricing.

The futures curve remains in a normal contango, with back-end maturities climbing while the front end held steady. The equal-weighted basis spread rose from 6.55% to 6.73% week-over-week. A flatter front end relative to longer maturities suggests weak spot demand.

Funding rates stayed positive throughout the week but are trending down from recent highs. Rates peaked at 26% APR last Friday, followed by 24.1% on Sunday and 15.3% on Wednesday.

Altcoin market cap increased from $1.17T to $1.21T, while Bitcoin dominance fell 0.5% marking the second consecutive week of underperformance. Although dominance remains in a multi-year uptrend, a continued decline could signal the onset of a new alt-season. The long Bitcoin / short altcoin trade has been one of the most consistent and low-volatility strategies over the past 2.5 years.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $103,893

• 30-Day MA: $96,012

• 180-Day MA: $93,849

• 360-Day MA: $79,333

• 200-Week MA: $47,168

Bitcoin is trading above all key moving averages (MAs) this week, following a breakout from a three-month downtrend a month ago. It currently sits 0.25% above the 7-day MA, 8.48% above the 30-day MA, and 10.98% above the 180-day MA. While short-term MAs are beginning to catch up as price action cools, Bitcoin remains well ahead of its longer-term averages.

Trend Following

Returns for Bitcoin 7-day and 30-day long trend-following portfolios remain 7.9% below local highs set in late January, though performance has rebounded sharply in recent weeks. A month ago, these portfolios were down 22.99%, marking the steepest drawdown for long-biased trend strategies since late 2024 when drawdown approached 25%.

The recent drawdown reflected broad deleveraging across crypto markets, as traders unwound long Bitcoin carry trades. However, bullish catalysts in mid-April helped reverse the trend. Traders began re-leveraging and re-entering carry trades they had exited three months earlier. Still, the decline in option implied volatility suggests a more measured approach to leverage.

BTC ETF Flows

Net inflows totaled $683 million this week, down sharply from the $2.65 billion seen three weeks ago. Inflows into Bitcoin ETFs have been tapering since the market bottomed last month.

Volatility

Bitcoin’s implied volatility (DVOL) is currently at 43.13%, placing it in the bottom 0.3% relative to its average over the past year and marking the lowest level since July 2024. Low implied volatility reflects weak demand for leveraged derivatives. When demand returns, market makers may be forced to hedge in the same direction as traders. amplifying price moves and driving DVOL higher.

Unlike equities, Bitcoin often experiences volatility expansion during both uptrends and downtrends. However, this most recent rally has not been accompanied by rising volatility, suggesting that traders are less inclined to chase the uptrend, even as prices move higher.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all maturities. The equal-weighted average basis spread rose 0.17% this week, from 6.55% to 6.73% APR.

The futures curve is in a normal contango, with the front-week contract (May 23rd) yielding the lowest APR at 6.3%, and maturities generally increasing further out. The exception is the June 27th back-month contract, which remains unchanged from last week and now yields less than the front-month May contract.

The spread between the highest and lowest yielding contracts narrowed to 0.83%, down from 0.97% last week, marking the flattest curve in over a month. Contract APRs rose at the back end of the curve and fell at the front end. The front month (May 30th) contract fell from 6.6% APR to 6.49% APR, the December 2025 contract increased from 6.83% to 7.13%, and the March 2026 contract increased from 6.86% to 7.1%.

Market makers frequently utilize the front contracts to hedge spot exposure, whereas speculative traders predominantly engage with the long end of the curve. The fall in the front-end signals that spot and short duration options demand is falling from previous weeks.

The ideal futures curve in a bullish market is a downward-sloping contango, where demand for near-term maturities exceeds the short-run supply that market makers can provide. This structure reflects strong spot demand and is exemplified by the January curve (Figure 8), which showed a steep front-end premium.

Market makers primarily use front-month futures to hedge short-duration exposures including spot, perpetuals, and front-week options. By concentrating activity in near-term contracts, they can scale larger books while maintaining delta neutrality. The higher front maturity APRs are over distant maturities, the more bullish the market is in the near term.

Macro

Since President Trump's inauguration on January 20th, a significant shift in US geopolitical policy has prioritized domestic production through tariffs and a strategic realignment of military assets. Tariffs have emerged as a key instrument in this policy shift.

Last weekend marked the commencement of crucial trade negotiations between the US and China. At the outset, both nations agreed to a 90-day reduction in tariffs on each other's goods. The US lowered its baseline tariffs on Chinese goods from 145% to 10%, while China reduced its baseline tariffs on US goods from 125% to 10%. Both countries maintain additional tariffs and non-tariff barriers on certain goods. For instance, the US applies differentiated tariffs on certain sectors (higher for steel, lower for smartphones). Similarly, China's restrictions include a ban on rare earth mineral exports.

Financial markets, particularly the cryptocurrency market, reacted to anticipated news of these negotiations starting on Thursday of the previous week. Cryptocurrencies experienced a more pronounced rally before the official announcement compared to their response afterward, while the stock market showed a stronger positive reaction to the news. This divergence could be attributed to traders leveraging the 24/7 nature of cryptocurrency markets to gain exposure to the anticipated weekend announcement, when traditional financial markets were closed. By holding crypto, traders had the flexibility to adjust their positions over the weekend before potentially shifting to stocks upon official news on Monday. This may explain the dip in Bitcoin's price on Monday following the announcement details, while the stock market enjoyed a significant upswing.

On May 7th, the Federal Reserve convened its third Federal Open Market Committee (FOMC) meeting of the year. Chair Powell refrained from announcing any interest rate cuts or a reduction in the $5 billion per month quantitative tightening pace established at the March meeting.

The treasury basis trade disruption in mid-April had fueled speculation about potential emergency quantitative easing intervention by the Fed to stabilize the bond market. However, the Trump administration's decision to postpone tariff implementation ultimately calmed market anxieties.

Notably, the European Central Bank (ECB), the Bank of England (BOE), the People’s Bank of China (PBOC), and the Swiss National Bank (SNB) all implemented interest rate cuts in the preceding month, a move not mirrored by the Federal Reserve. As the ECB highlighted in its recent meeting, the impact of US tariffs varies across countries. Given the US's position as a major consumer of foreign goods and the prevalence of other nations as net exporters to the US, these tariffs tend to exert inflationary pressure on US goods prices while contributing to deflationary pressures on foreign goods prices.

Despite Powell's position regarding future rate cuts, the December Secured Overnight Financing Rate (SOFR) futures markets continue to price in a significant 75-basis point (bp) cut by the end of the year, an increase from the 50 bp expectation prior to the tariff announcement.

The Dollar Index ($DXY), which measures the US dollar's value against a basket of other major currencies, initially surged to a high of 102 on Monday following the tariff pause announcement. However, it subsequently retreated to its weekly opening level of 100.7 by Thursday's close. While the $DXY is exhibiting an upward trend driven by rising US treasury yields, these yields are increasing at a considerably faster pace than the dollar's appreciation. The 30-year US treasury yield reached 5% on Thursday, marking its highest level since the SOFR swap-based trade collapse last month.

Historically, the $DXY and US treasury bond yields have displayed a strong positive correlation, as illustrated in Figure 9. This correlation is a common characteristic between a currency and its own government's bond yields. It arises because higher yields in a country's bond market create an attractive carry trade opportunity against lower-yielding foreign currency bond markets. For instance, if Japan's and the US's base interest rates are 1%, and the US raises its rate by 0.5%, traders can borrow Yen at a lower cost, convert it to dollars, and invest in higher-yielding US treasury bonds, profiting from the interest rate differential, albeit with the risk of currency fluctuations.

Both equity market implied volatility (VIX) and US treasury bond implied volatility (MOVE) experienced a surge after the tariff announcement a month ago but have since returned to their long-term averages. As of last Thursday, the VIX stood at 17.82 and the MOVE index at 98.65, showing a slight decrease from the previous week's levels of 22.42 and 98.66, respectively.

Sincerely,
The Hermetica Team