IN THIS ISSUE

🌇 Jakob at ALL-IN Vegas
🛡️ Custodian attestations: May 2025
📈 Stacks growth proposal
💰 USDh yield recap
☎️ Hermetica Hangout: Vegas
📈 Weekly market review

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Jakob at ALL-IN Vegas

This week, our Founder and CEO Jakob joined a panel at the Arch Network ALL-IN Summit to share:

Watch the recording to learn why stable, yield-bearing assets are critical to the next phase of Bitcoin DeFi.

Custodian Attestations: May 2025

The latest snapshot is in — USDh’s May 2025 attestation is now live.

We’re sharing our latest attestation report from all integrated custodians, confirming that USDh’s backing assets are securely held off-exchange in institutional custody.

In summary, as of the snapshot time:

• USDh supply: $5,624,515.96

• Copper custodied assets: $3,299,741.52

• Ceffu custodied assets: $1,963,600.00

• Redeeming Reserve Stacks: $133,041.11

• Redeeming Reserve Ethereum: $228,133.33

• Total backing assets: $5,624,515.96

• Reserve Fund: $54,932.52

  • USDC: $50,149.59

  • USDh: $4,782.93

• Total % of USDh: 100.89%

Read the attestations from Copper and Ceffu for the full breakdown of Bitcoin backing USDh.

Stacks Growth Proposal

Stacks is entering a new phase focused on scaling adoption.

A new proposal, co-authored by Jakob, introduces a community endowment and operational team to drive growth and support builders.

The plan raises fresh capital to put Stacks on par with top ecosystems, with future protocol revenue reinforcing sustainable ecosystem growth through ongoing endowment funding.

USDh Yield Recap

Staking USDh is like finding money in your coat pocket. Except it’s every week and it’s on Bitcoin.

This week, USDh stakers found 15% APY. Whether you’re here for the tech or the passive income, this is what Bitcoin DeFi was meant to feel like.

Hermetica Hangout: Vegas

This week, the real hangout happened at Bitcoin 2025 in Vegas. If you’re there, we hope you had the chance to hangout with the team in person.

Next week, we’re back online with a community call. Mark your calendar—it’s going to be a good one.

Market Review

Bitcoin surpassed its January all-time high (ATH) last week, briefly reaching $112,000 before pulling back to $104,000 following the conclusion of the Bitcoin conference in Las Vegas. Derivatives rates (funding rates, basis spread, options premium, etc.) declined across the board this week. Both options premiums and futures basis spreads moved lower, while perpetual futures (perps) funding rates became less positive compared to previous weeks.

Bitcoin implied volatility (DVOL) rose to 44.32% after hitting a 10-month low of 41.57% two weeks ago, though it remains down from last week’s 48.22%. The futures curve remains in a generally normal contango, though the entire curve shifted lower, with front-month contracts seeing the steepest declines. The average (equal-weighted) basis spread fell 2.23% week-over-week, from 9.15% to 6.92%. This steeper drop in front-end contracts suggests weakening spot demand.

Funding rates stayed marginally positive but hovered near zero for most of the week, dipping into negative territory on Wednesday and Friday during large sell-offs.

Meanwhile, aggregated altcoin market capitalizations declined from $1.27T to $1.16T week-over-week. Bitcoin dominance increased by 0.54% over the week but remains in a short-term downtrend after peaking on May 7. That said, the long-term multi-year uptrend in dominance remains intact for now. If the recent downtrend persists, it could mark the beginning of an altseason. Next week will be critical in determining that outcome, with lower timeframe charts suggesting Bitcoin dominance may be poised for a rally.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $107,529

• 30-Day MA: $103,609

• 180-Day MA: $94,768

• 360-Day MA: $80,841

• 200-Week MA: $47,891

Bitcoin is currently trading above all major moving averages (MAs) after breaking out of a three-month downtrend roughly a month ago. It sits 3.10% below its 7-day MA, 0.56% above the 30-day MA, and 9.95% above the 180-day MA. This marks the first significant correction since April 8, with price action now resting directly on the 30-day MA, a key level that often serves as a gauge for trend strength. Historically, uptrends tend to remain intact as long as the 30-day MA holds. A decisive break below this level at the current juncture would be a bearish signal, potentially suggesting that the recent move was a secondary top rather than the start of a sustained bull market.

Trend Following

Returns for a Bitcoin 7-day and 30-day long trend-following portfolio are now down 5.79% from the local highs set in late January. Just a month ago, the portfolio was down 22.99%, marking the deepest drawdown in long-oriented trend strategies since late 2024, when losses reached nearly 25%.

The earlier drawdown reflected a broad phase of deleveraging in crypto markets, as traders unwound long Bitcoin carry trades. However, bullish catalysts emerging in mid-April sparked a reversal, prompting re-leveraging and a renewed push into the carry trades that had been exited three months prior.

The re-leveraging phase now appears to be losing momentum, with trend-following portfolio returns beginning to stagnate once again.

BTC ETF Flows

Net inflows totaled $683M this week, a fivefold decline from the $2.799B recorded last week. The slowdown coincides with the closure of traditional financial markets on Monday due to a U.S. federal holiday, which may have contributed to the muted activity.

Volatility

Bitcoin’s implied volatility (DVOL) currently stands at 44.32%, placing it in the bottom 1.6% of its historical range over the past year. Last week, DVOL briefly spiked as Bitcoin looked to decisively break through its previous all-time high only for the rally to falter. Persistently low implied volatility may reflect subdued demand for leveraged derivative exposure.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all maturities. The average (equal weighted) basis spread fell 2.23% this week, from 9.15% APR to 6.92% APR.

The futures curve is in a normal contango again with the front-week contract (expiring June 6th) yielding the lowest APR at 5.11%, and maturities gradually increasing through to the September 2025 contract.

Beyond September 2025, the curve begins to slope downward, suggesting traders expect Bitcoin to outperform its long-term average specifically during the summer months. The total spread between the highest- and lowest-yielding maturities has compressed to 2.55%, down from 5.44% last week. Excluding the front-week contract, that spread narrows further to just 1.07%.

Market makers may rely on front-month futures contracts to hedge spot exposures, while speculative traders tend to concentrate their activity at the longer end of the curve. The recent decline in front-end basis is largely a reflection of softening demand for spot and short-dated options, leading to reduced urgency for near-term hedging.

In an ideal bullish environment, the futures curve exhibits a downward-sloping contango, where front-month premiums are elevated due to immediate demand outpacing the supply that market makers can source. This was evident in January’s curve (Figure 8), which reflected intense spot market demand.

Market makers use front month futures to hedge short/current duration assets such as front week/month options, perps, and spot. Using front maturities allows MMs to manage larger books while maintaining delta neutrality.

Macro

Bitcoin’s rally back to all-time highs earlier this month coincided with a brief surge in market optimism following the announcement of tariff reductions between the United States and China. However, with the Bitcoin price near ATHs, it is difficult to predict where price will go. Historically, Bitcoin’s breakouts above ATHs have led to either sustained bull markets (2017 and 2021), or marked cycle tops (2022).

In past Bitcoin bull markets, accommodative Federal Reserve policy was a key catalyst: low rates and quantitative easing pushed up asset prices broadly. By contrast, the 2022 peak was fueled by overleverage in crypto and unraveled as monetary tightening took hold.

The Federal Reserve has remained firm on its stance to hold rates steady and maintain the current pace of quantitative tightening at $5 billion per month. Chair Jerome Powell reiterated that the Fed remains data-dependent and will only pivot if inflation declines materially or unemployment rises significantly. Despite widespread global rate cuts by the European Central Bank (ECB), the Bank of England (BOE), the People’s Bank of China (PBOC), and the Swiss National Bank (SNB) the Fed has resisted easing. Powell has even signaled willingness to hike again if inflation accelerates.

The December SOFR futures markets are now predicting a 50-basis point (bp) cut by year end, flat from before the tariff announcement.

Equity markets have responded poorly to every rise in bond yields in the last month, but gold and Bitcoin have been moving higher despite rising yields. Historically, Bitcoin has been closely correlated with tech stocks, particularly the Nasdaq, reflecting its appeal to growth-oriented investors. That correlation appears to be weakening, with ETF-driven flows and a growing perception of Bitcoin as a store of value supporting its price. If the Fed holds firm while fiscal tightening ensues, a deflationary backdrop could weigh on both gold and Bitcoin. But if monetary easing resumes and inflation picks up, both assets stand to benefit.

The international backdrop is also shifting. The Bank of Japan has reversed its easing trend and begun raising rates, contributing to a surge in Japanese bond yields. This has triggered an unwinding of the popular USD-JPY carry trade, prompting capital flows out of U.S. assets and into the yen. As a result, the Dollar Index ($DXY) has declined to 99.33, while 30-year Treasury yields touched 5.15% last week, levels not seen since the end of the 2023 rate hike cycle. Although yields have declined to 4.94%, they remain elevated.

This divergence between the dollar and U.S. long-term yields, normally positively correlated (Figure 9), suggests foreign investors are reducing exposure to U.S. markets. Additional pressure stems from Japanese firms reallocating to yen-denominated assets and abandoning dollar-linked carry positions.

This dynamic occurs because raising yields in one country’s bond market creates a positive yielding carry trade between that currency’s bond market and lower yielding foreign currency bond markets. For example, if Japan and America’s interest rates are 1% and the US increases their interest rate by 0.5% then traders can borrow Yen from Japanese lenders, sell this Yen for Dollars, and then buy US treasury bonds for a higher yield than their borrow rate in Yen. This creates a positive yield on the borrowed capital thus magnifying the profits of the trader at the risk of being liquidated if the value of the Yen rises relative to the dollar.

Both equity market implied volatility (VIX) and US treasury bond implied volatility (MOVE) surged after the tariff announcement more than a month ago but have since returned to long term averages. Equity implied volatility (VIX) and Treasury bond implied volatility (MOVE) indices are currently 18.9 and 92.67, respectively, down from 20.27 and 99.47 last Thursday.

Sincerely,
The Hermetica Team