IN THIS ISSUE

🌇 Jakob speaks at ALL-IN Vegas
🟠 sBTC cap-3 raise
💰 USDh yield recap
☎️ Hermetica Hangout: Zest Protocol
📈 Weekly market review

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Jakob Speaks at ALL-IN Vegas

Jakob, our founder and CEO, will be speaking at the ALL-IN Summit in Las Vegas, joining other industry leads to discuss the next chapter of Bitcoin innovation.

He’ll share Hermetica’s vision for Bitcoin-backed stablecoins, the growth of Bitcoin-native DeFi, and what comes next for USDh.

If you’re at the summit, catch him live. If not, stay tuned, we’ll bring the highlights.

sBTC Cap-3 Raise

The Stacks’ momentum continues with the newest sBTC cap increase.

The latest 2,000 BTC increase was filled within hours, bringing the total to over $500 million in Bitcoin deployed across the network. This pushes Stacks ahead of the Lightning Network in terms of onchain BTC capital, reinforcing its position as the leading Bitcoin layer for DeFi.

Start earning with sBTC while the momentum builds.

USDh Yield Recap

Bitcoin hit an all-time high this week and USDh said, “Finally, some company."

While price charts went vertical, USDh quietly delivered 13% APY, making sure the Bitcoin side of the market stayed undefeated on both price and yield.

This is what winning looks like; your money is backed by the hardest asset on earth and knows how to work.

Hermetica Hangout: Zest Protocol

This week, we hosted Tycho from Zest to talk liquidations, lending markets, and how USDh is powering new capital flows in Bitcoin DeFi.

Next week, we’re bringing on the Asigna team to discuss secure wallet infrastructure and what it means for institutions using apps like Hermetica.

Set your reminder, it’s going to be a good one.

Market Review

Bitcoin broke above its January all-time high this week and is now trading around $111,000. Derivatives markets responded with rising rates across the board: options and futures premiums increased, perpetual futures (perps) funding rates turned positive, and implied volatility (DVOL) climbed to 48.22% after hitting a 10-month low of 41.57% last week.

The futures curve shifted into an inverted contango with all maturities rising, with the front-month contract (May 30th) climbing the most. This steepening front-end pushed the equal-weighted average basis spread up 2.42% week-over-week, from 6.73% to 9.15% APR. A front-heavy curve typically signals strong spot demand and increased hedging activity by market makers.

Funding rates trended upward throughout the week, peaking at 30.66% APR on Thursday on Deribit.

Meanwhile, the aggregated altcoin market cap rose from $1.21T to $1.27T. Bitcoin dominance increased by 0.43% this week but remains in a near-term downtrend after peaking on May 7th. While Bitcoin dominance has followed a multi-year uptrend, a sustained decline from here could mark the start of an alt-season.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $107,770

• 30-Day MA: $100,658

• 180-Day MA: $94,315

• 360-Day MA: $80,090

• 200-Week MA: $47,548

Bitcoin is trading above all key moving averages (MAs) this week, following its breakout from a 3-month downtrend last month. It currently sits 3.04% above the 7-day MA, 10.32% above the 30-day MA, and 17.74% above the 180-day MA. Short-term MAs regained momentum this week after briefly decelerating at the end of last week.

Trend Following

Returns for a Bitcoin 7-day and 30-day long trend following portfolio are now only down 1.84% from local ATHs set in late January. A month ago, these portfolios were down 22.99% marking the steepest drawdown in long-biased trend strategies since late 2024, when losses approached 25%.

The recent drawdown reflected broad deleveraging across crypto markets, as traders exited long Bitcoin carry trades. However, a wave of bullish catalysts from mid-April reversed the trend, prompting re-leveraging and a return to carry trades that had been abandoned three months earlier. While options implied volatility (IV) remained subdued last week, suggesting low demand for leverage, it has picked up again this week as Bitcoin surpassed its previous highs.

BTC ETF Flows

Net inflows this week were $2.799B; a 4x increase from last week breaking the month-long downtrend.

Volatility

Bitcoin's implied volatility (DVOL) currently sits at 48.22%, placing it in the bottom 14.2% of its range over the past year. Last week DVOL was 0.3% compared to its level over the last year, its lowest point since July 2024. Low implied volatility signals weak demand for derivatives leverage. As demand returned this week, market makers were forced to hedge in the same direction as traders. Bitcoin can see volatility expansion during both strong uptrends and downtrends.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all maturities. This week, the equal-weighted average basis spread rose 2.42%, from 6.73% APR to 9.15% APR. The futures curve has returned to a normal contango, with the front contract (May 30th) offering the highest yield at 13.42% APR, followed by gradually declining yields through the March 2026 contract.

The spread between the highest- and lowest-yielding maturities widened significantly to 5.44%, up from just 0.83% last week. However, if the front-month contract is excluded, the curve flattens to a minimal 0.29%. This concentration of demand in the front-month contract is likely driven by market maker hedging activity.

The May 30th front month contract jumped from 6.49% to 13.42% APR, while the December 2025 contract rose from 7.13% to 8.06%, and the March 2026 contract increased from 7.10% to 7.97%. Market makers typically hedge spot exposure using short-dated contracts, whereas speculative traders favor the long end of the curve. The sharp rise in the front end reflects increased spot and short-dated options demand.

The ideal futures curve is a downward sloping contango where demand for near-term maturities exceeds the supply market makers can source in the short run. The January curve (Figure 8) is a prime example, reflecting intense spot market demand.

Market makers typically hedge short-duration exposures like spot, perpetuals, and front-week/month options using front-month futures to maintain delta neutrality. The greater the yield differential between front and long-dated contracts, the more bullish the market outlook is in the short term.

Macro

Market sentiment improved earlier this month following the United States and China’s agreement to temporarily reduce tariffs during a 90-day negotiation period. The Federal Reserve held its third FOMC meeting of the year on May 7th. No rate cuts or adjustments to the $5 billion monthly quantitative tightening were announced. Chair Powell reiterated that policy adjustments would depend on inflation and labor market dynamics. In contrast, the European Central Bank (ECB), the Bank of England (BOE), the People’s Bank of China (PBOC), the Swiss National Bank (SNB) have all moved to ease rates in recent weeks. The Bank of Japan remains an exception, with long-term Japanese yields rising sharply as investors rotate into the Yen and unwind USD-JPY carry positions. December SOFR futures continue to price in a 50bp cut by year-end, unchanged from levels before the tariffs.

Equity markets weakened in response to rising yields, while gold and Bitcoin moved higher. Bitcoin’s historical correlation with the Nasdaq and US tech equities appears to be diverging as ETF-driven flows grow and narratives around Bitcoin as a store of value gain traction.

The Dollar Index ($DXY) declined to 99.61 as of Thursday, despite rising 30-year Treasury yields, which hit 5.15%, their highest level since late 2023. This divergence may signal growing foreign divestment from US debt. Historically, $DXY and long-term Treasury yields have moved in tandem. Recent deviations, particularly in the context of rising Japanese yields and carry trade unwind pressure, suggest shifting global capital flows.

The correlation between a currency and its own government’s bond yields is common across major economies. This relationship exists because rising yields in a country’s bond market create positive-yielding carry trade opportunities against lower-yielding foreign currency markets. For example, if both Japan and the US have interest rates of 1%, and the US raises its rate by 0.5%, traders can borrow Yen, convert it to Dollars, and invest in US Treasury bonds for a yield premium, earning a return on the interest rate differential while taking on currency risk.

$DXY and long-term Treasury yields began to diverge following the recent US tariff announcements. Rising Japanese Treasury yields and the unwinding of the Yen-dollar carry trade are contributing to pressure on the dollar, as some investors reduce exposure to US bonds and rotate into the Yen.

Both equity market implied volatility (VIX) and US Treasury bond volatility (MOVE) surged following the tariff news but have since returned to their long-term averages. As of Thursday, the VIX stands at 20.27 and the MOVE index at 99.47, up from 17.82 and 98.65, respectively, last week. Despite rising yields, the MOVE index has declined slightly, suggesting that bond market volatility remains contained and that the recent selloff has not triggered significant dislocation.

Sincerely,
The Hermetica Team