IN THIS ISSUE

🍊 USDh live on Zest 
💰 USDh yield recap
🎥 Hermetica Hangout: Zest
📈 Weekly market review

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USDh Live on Zest

USDh is now listed on Zest Protocol, the leading money market on Stacks. With this integration a number of exciting trades are now possible:

Deposit 50 USDh into Zest before November 27th for a chance to win one of two 250 USDh prizes!

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USDh Yield Recap

Up to 25% was not hyperbole as week #47 welcomed 25% APY.

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Hermetica Hangout: Zest

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Market Review

Bitcoin continues to break all-time highs as we sit at $98,800.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $93,520

• 30-Day MA: $77,830

• 180-Day MA: $65,543

• 360-Day MA: $60,347

• 200-Week MA: $41,191

Bitcoin’s price remains well above all key moving averages. Bitcoin entered price discovery two weeks ago during the U.S. election. This breakout from a multi-month downtrend has established a bullish trend, with prices holding well above all key moving averages.

Moving averages, particularly the 7-day and 30-day MAs, often act as strong support levels in bull markets. When the price tests these averages, they are likely to represent local lows before resuming upward momentum.

With the current Bitcoin price structure, the following levels may provide opportunities for accumulation depending on market conditions: $90,000, $88,000, $74,000, $72,000, $70,000, $68,000, $66,000, $64,000, $61,000, $60,000, $55,000, and $49,000.

The Bitcoin returns are as follows:

• 1 month: 47.73%

• 3 months: 53.54%

• 6 months: 43.79%

• 12 months: 164.15%

At 164.15%, Bitcoin's annual returns are at their highest in over three years. These elevated 1-year returns are likely to persist until October 2023 through February 2024, assuming the price does not continue to rally in the interim.

Historically, periods of above-average returns are often followed by below-average returns, and vice versa. After the BTC ETF launch in Q1 2024, Bitcoin entered a gradual downtrend that lasted until the U.S. election on November 5th. Given this 9-month period of underperformance, coupled with the fact that annual returns will soon be indexed to a higher base price, the current above-average returns should not necessarily be interpreted as a market top.

BTC ETF Flows

Net BTC ETF inflows since last Friday totaled $2.50 billion, rebounding to levels last seen in the week before the election.

Over the past three weeks, net inflows were $2.67 billion, $1.37 billion, and $0.66 billion, respectively. This week’s average daily inflows reached $498.56 million, marking a fivefold increase compared to the previous week.

Volatility

Bitcoin's implied volatility (DVOL) currently stands at 61.1%, placing it in the 77.9th percentile relative to levels observed over the past year. DVOL has begun to expand again after initially declining following the election and the all-time high (ATH) breakout.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all mThe basis spread, which measures the difference between a futures contract's price and its spot price, remains positive across all maturities. Over the past week, the average spread has increased from 13% to approximately 14.5%, up from 7.5% just over a month ago. This expanding basis indicates traders are adding leverage to their positions, a healthy sign as long as it aligns with rising prices, which has been the case so far.

However, caution is warranted—a 10% correction driven by a perpetual liquidation cascade remains a possibility in the next month.

The futures curve is currently in an inverted contango from the front month (November 29th) onward, with the basis steadily declining from the front month to the September 2025 expiration in a smooth curve. There is approximately a 13% difference between the highest and lowest yielding maturities. This spread has been widening (curve steepening) even before the election.

A steep downward-sloping contango indicates that demand for shorter maturities is outpacing supply, becoming detached from Bitcoin’s long-term APR. The greater this detachment, the more bullish the market sentiment is toward near-term price action.

Bullish Bitcoin futures curves often exhibit a special inverted contango (Figure 6), where the front month has the highest APR, with the APR decreasing across subsequent maturities, though remaining positive throughout the curve. This pattern closely mirrors the current curve.

This structure is considered the most bullish in the short term because market makers typically use the front month as a substitute for perpetual contracts (perps) and spot during periods of high demand.

Macro

There have been movements in U.S. crypto regulation following Donald Trump’s victory in the 2024 presidential election with a platform including the creation of a “Bitcoin reserve” for the US government. Earlier this year, Wyoming Senator Cynthia Lummis introduced the BITCOIN Act, which is likely to be prioritized by the incoming Trump administration. Crypto industry lobbyists, donating hundreds of millions of dollars to Trump and other Republican candidates, have secured significant political influence.

This has extended to key financial bureaucratic positions, including Treasury and Commerce Secretary, SEC chair, and economic advisory roles. The Commerce Secretary role has been filled by Howard Lutnick, CEO of Cantor Fitzgerald, while the Treasury Secretary role remains open, with contenders including Scott Bessent, Kevin Warsh, Bill Hagerty, and Marc Rowan. Among these, Hagerty and Bessent are crypto-friendly, while Warsh holds a less favorable stance. The SEC chair field is broader, with names like Brian Brooks and Dan Gallagher seen as favorable for crypto, though Robert Stebbins has expressed concerns about KYC requirements for DeFi.

Two weeks ago, the Federal Reserve cut short-term interest rates by 25 basis points in line with market expectations. This followed a 50-basis point cut in September, signaling that Powell may have been too slow to initiate the rate-cutting cycle. While such cuts often indicate deflationary pressures, strong asset prices suggest that the economy is stabilizing. Trump’s second term is expected to run high fiscal deficits, supporting asset prices alongside the Fed's falling rates.

Globally, other central banks have followed suit, with China announcing a stimulus package in late September, including rate cuts and $114 billion in stock market support. Additionally, China is considering issuing $834 billion in bonds to support economic growth and recapitalize banks. This shift marks a significant change in China’s monetary policy, boosting global liquidity.

Implied volatility in US markets has collapsed following the election. The S&P 500’s VIX stands at 16.86, and US Treasury implied volatility is down to 101.9, with both equity and bond volatilities making local highs before the election and then falling as market makers returned to provide liquidity.

Sincerely,
The Hermetica Team