IN THIS ISSUE

🟧 The State of Stacks 
💰 USDh yield recap
🎥 Hermetica Hangout: Zest
📈 Weekly market review

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The State of Stacks

The newest State of Stacks report from Messari Research is here and examines Q2 and Q3 2024 — it’s certainly been an exciting year for the Stacks team so far.

The report covers key insights like:

That’s just the tip of the iceberg; this report is a great way to get insights on Stacks’ usage, TVL, and developments.

Read the full report to learn more:

USDh Yield Recap

Week #46 welcomed in more steady gains — this week sUSDh holders earned 23% APY.

Stake USDh and start earning today:

Hermetica Hangout: Zest

Set your calendars for November 20 — something exciting is brewing!

The next Hermetica Hangout with Zest is almost here, and trust us, you don’t want to miss this one. Follow the Hermetica X account, and turn on notifications.

Don’t worry if you didn’t catch the last Hangout with JRNE – we’ve got the gems for you:

Check out the full recording on X:

Market Review

This week saw an explosion of price action as Bitcoin sits at $89,103.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $85,779

• 30-Day MA: $72,291

• 180-Day MA: $64,591

• 360-Day MA: $59,253

• 200-Week MA: $40,896

Bitcoin’s price remains well above all key moving averages. Last week, on election day, as Trump’s victory appeared imminent, Bitcoin surged past its all-time highs (ATHs), entering price discovery territory. This breakout from a multi-month downtrend has confirmed a bullish trend, which is likely to persist as long as the price holds above these moving averages.

In bull markets, moving averages—particularly the 7-day and 30-day MAs—often act as strong support levels. When the price approaches these MAs, they can signal local bottoms, paving the way for further upward momentum.

Bitcoin entered price discovery last week after breaking through its all-time highs (ATHs) on high volume, establishing a highly bullish market structure. A potential scenario is a retest of the previous ATH of $74,000 before resuming upward momentum. Such a retest would likely present a strong buying opportunity.

If the current breakout fails, key support levels are estimated at $88,000, $74,000, $72,000, $70,000, $68,000, $66,000, $64,000, $61,000, $60,000, $55,000, and $49,000. These levels may provide opportunities for accumulation depending on market conditions.

The Bitcoin returns are as follows:

• 1 month: 29.21%

• 3 months: 47.08%

• 6 months: 31.93%

• 12 months: 141.45%

Annual returns on Bitcoin remain very high at 141.45% as the recent rally compensates for older and lower price data falling out of the dataset. Bitcoin’s 1-year return will remain high until October 2023 - February 2024 assuming price doesn’t rally much in the meantime.

Periods of above average returns are typically followed by periods of below average returns and vice versa. Now that we have suffered below average returns for 9 months and old data is falling out of the dataset, Bitcoin returns are likely to be positive.

BTC ETF Flows

Net BTC ETF inflows since last Friday were $661 million.

Inflows are stabilizing following their election-driven surge over the past two weeks. Net inflows reached $2.67 billion and $1.37 billion in the last two weeks, respectively. This week, average daily inflows have dropped to $132.2 million, marking a 50% decline compared to the previous week.

Volatility

Bitcoin’s implied volatility (DVOL) currently stands at 61.1%, placing it in the 76.3rd percentile. After declining in the wake of the election and the breakout to all-time highs, DVOL is now beginning to expand again. This reflects a shift in market dynamics as the rally struggles to push beyond the $90,000 level.

Bitcoin’s implied volatility (DVOL) currently stands at 61.1%, placing it in the 76.3rd percentile. After declining in the wake of the election and the breakout to all-time highs, DVOL is now beginning to expand again. This reflects a shift in market dynamics as the rally struggles to push beyond the $90,000 level.

Ahead of the election, Deribit market makers likely adopted a risk-off approach with low gross exposure. As election results solidified and Trump’s victory became apparent, implied volatility collapsed, further supporting a cautious stance.

However, in the last few days there has been a change in market structure that can explain this shift. Spot inflows have tailed off and at the same time options open interest has grown to highs not seen since March (Figure 4). This pick up in options purchases is increasing the cost of options contracts and thus causing implied vol to expand despite little price movement at this price level.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all maturities. The average spread of all maturities has risen from 12% to about 13% in the last week, and from 7.5% to the current 13% in little more than a month. An expanding basis spread indicates that traders are adding more leverage to their position. Rising leverage is acceptable as long as it’s met with a corresponding increase in price. However, price has been stagnating at $90,000 for the last few days and thus increasing systematic fragility into the market. The market is overdue for a 10% correction and a future’s liquidation cascade might be the impetus for it.

The futures curve is in an inverted contango starting with the front week (November 22nd), with the basis steadily declining through to the September 2025 expiration in a smooth trajectory. The yield difference between the highest and lowest maturities is approximately 7%. This spread has been widening (steepening) even prior to the election.

A steep, downward-sloping contango indicates that demand for near-term maturities is outpacing supply, diverging from Bitcoin’s long-term annualized percentage rate (APR). The greater this detachment for closer maturities, the more bullish the market sentiment becomes for short-term price action.

Bullish Bitcoin futures curves are typically special inverted contangos (Figure 7) where front month has the highest APR, and APR falls every maturity thereafter, but APR is positive along the whole curve. This is roughly how the curve looks today.
This is the most bullish curve in the short term because market makers use front month as a substitute for perps and spot during periods of high demand.

Macro

Last Tuesday, Donald Trump secured a second term as US President, a development that has significantly influenced Bitcoin’s recent surge. Trump's favorable stance on crypto appears to be a key driver, with his odds of winning—tracked on platforms like Polymarket—closely correlated with Bitcoin’s price movements before the election. When Trump’s odds plummeted on October 31st, Bitcoin followed suit, only to recover sharply on election night as his odds improved.

That said, Trump’s victory wasn’t the sole factor. Historically, elections suppress market volatility and price momentum as fund managers reduce risk ahead of major events, preserving cash and minimizing exposure. Once the election concluded, sidelined capital re-entered the market, lifting prices and dampening volatility. This phenomenon aligns with broader market trends: volatility spikes leading up to elections typically give way to rallies once uncertainty dissipates.

In tandem with the election, monetary policy developments have also buoyed financial markets. At the November FOMC meeting, the Federal Reserve cut short-term interest rates by 25 basis points (bp), as expected. Chair Jerome Powell refrained from addressing the election or speculating on Trump’s policies, maintaining a cautious stance.

This rate cut follows a larger 50 bp cut in September, signaling a pivot to more aggressive easing. Rapid rate cuts often respond to deflationary pressures, though strong asset performance two months after the initial cut suggests broader economic support. With Trump’s administration expected to continue running high fiscal deficits, falling rates and accommodative policies are likely to sustain asset price growth.

Global monetary easing is further supported by China’s significant policy shift. On October 7th, a stimulus package came into effect, including rate cuts and $114 billion in stock market support. Additionally, China is reportedly considering issuing 6 trillion yuan in central government bonds to fund consumer handouts, local government refinancing, and bank recapitalization.

The impact is already visible: Hong Kong’s stock exchange surged 30% in just a month, marking a sharp departure from China’s restrictive policies since 2020. This easing represents a major injection of global liquidity, amplifying market momentum.

Macro volatility has also normalized post-election. The S&P 500’s implied volatility (VIX) has fallen to 14.68, while US Treasury volatility (MOVE Index) declined to 99.42. As expected, both equity and bond volatilities peaked two weeks ago but collapsed after election day as market makers re-entered to provide liquidity. This influx has stabilized markets, enabling risk-on sentiment to drive asset prices higher.

In summary, the convergence of election outcomes, accommodative monetary policies, and global easing has created a fertile environment for Bitcoin and broader financial markets to thrive.

Sincerely,
The Hermetica Team