IN THIS ISSUE

🍊 USDh thriving on Zest
🟠 Growth potential of Bitcoin stablecoins
💰 USDh yield recap
📈 Weekly market review

Like what you see? Join our exclusive, ever-growing community on Discord and take part in future product launches:

USDh Thriving on Zest

USDh has been live on Zest Protocol, the leading money market on Stacks, for one week - and what a successful week it was.

In just one week USDh saw:

Get started on Zest today and learn more about USDh’s traction in the Zest Weekly Recap:

Growth Potential of Bitcoin Stablecoins

Bitcoin stablecoins are on the rise alongside the veritable renaissance happening in Bitcoin DeFi.

UTXO Management foresee that continuing with a vengeance – in their recent report they view significant potential for Bitcoin stablecoins to:

Take a deeper look in the full report:

USDh Yield Recap

Big if true – week #48 saw 33% APY.

Stake USDh and start earning today:

Market Review

Bitcoin flirts with the $100k mark as we currently sit around $96k.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $95,482

• 30-Day MA: $83,392

• 180-Day MA: $66,607

• 360-Day MA: $61,427

• 200-Week MA: $41,506

A month after the election, Bitcoin remains in an uptrend. However, there has been added turbulence in the market as Bitcoin rejected the $100,000 price level.

Moving averages, especially the 7-day and 30-day MAs, often act as support for price in bull markets. As price meets these MAs, expect those to be local nadirs before more upward price action. This week the price broke below 7-day moving average when it rejected the $100,000 level but has since recovered the 7-day MA and is poised to test the $100,000 level again this week. 

Bitcoin is in price discovery after breaking through all-time highs (ATHs) on high volume on election day. The current structure based on price levels is extremely bullish. If the price dips, the following levels offer support for accumulation: $92,000, $90,000, $88,000, $74,000, $72,000, $70,000, $68,000.

On the upside Bitcoin is being held back by large sell orders at the psychologically significant $100,000 level. The price will likely have to test $100,000 multiple times prior to breaking through.

The Bitcoin returns are as follows:

• 1 month: 32.23%

• 3 months: 62.25%

• 6 months: 41.22%

• 12 months: 153.67%

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 were $35.2 million.

Inflows were flat this week for the first time since the week before the election. Net inflows in the previous four weeks were $2.5, $2.67, $1.37, and $0.66 billion, respectively.

Volatility

Bitcoin's implied volatility (DVOL) is currently at 56.18%. DVOL is currently in the 53.1st percentile relative to levels seen in the last year.

DVOL contracted after the price was rejected at the $100,000 level. Market makers’ positions typically benefit from moving back to the center of a long-term range since their short option positions will move farther out of the money. DVOL will likely increase if the $100,000 level is tested again.

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 is about 14.5% in the last week, up from 7.5% since the week before the election. This past week is the first week since the start of the month that the basis spread has not expanded. No doubt, the rejection at $100,000 is largely to blame for this. Futures are a leverage product for traders and the rejection caused the largest long liquidation since the rally began thus handicapping further expansion.

The futures curve is in an inverted contango from the front month (December 27th) onward. The basis falls continuously from the front month to the September 2025 maturity in a smooth curve. There is about a 5% difference between the lowest and highest yielding maturities. The spread between maturities has flattened from a high of 13% last week.

 A steep downward sloping contango indicates that demand for closer maturities is outstripping supply and becoming detached from Bitcoin’s long run APR. The more detached close maturities become the more bullish the market is on near term price action. Since the curve has flattened the market is distinctly less bullish this week than previous weeks.

Bullish Bitcoin futures curves are typically special inverted contangos (Figure 6) where front month has the highest APR, and APR falls every maturity thereafter, but APR is positive along the whole curve. Figure 6 example futures curve is from last Friday.

This is the most bullish curve in the short term because market makers use front month to hedge short perp and spot positions during periods of high demand.

Macro

A month ago, Donald Trump won the 2024 presidential election on a platform that included creating a “Bitcoin reserve” for the US federal government. Earlier this year Wyoming senator Cynthia Lummis introduced the “Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide”, or BITCOIN, Act. The bill has yet to make its way through Congress, but it will likely be prioritized by the incoming Trump administration.

Crypto industry lobbyists have earned significant political capital after donating hundreds of millions of dollars to Trump and other Republican candidates this cycle. Donations from high-net worth individuals and crypto companies, such as Coinbase, this cycle outstripped lobbying efforts by the entire oil & gas industry for the last 3 cycles combined.

During the FOMC meeting on November 7th the Fed dropped short-term interest rates by 25 basis points (bp), in line with market expectations which had the odds of a 25 bp cut at 85%. Powell did not give much additional information in the post-FOMC press conference, wisely refusing to answer any question regarding the recent election or Trump’s future policy.

Last September, the Federal Reserve announced their first 50 (bp) cut in the Fed Funds Rate ,the range of rates that banks are incentivized to lend to each other overnight. Prediction markets put the odds that the Fed would cut 50 bp at 53% and 25 bp at 47% before the announcement. By cutting 50 bp in one meeting rather than the more conservative 25 bp, Powell is signaling that he made a mistake not starting the rate cutting cycle earlier. Typically, rapid rate cutting is in response to strong undercurrents of deflation in the economy. These undercurrents may still be present but 2 months out from this first cut, asset prices are looking strong.

Other central banks are following the US’s lead and have now begun easing monetary policy. The Chinese government announced a stimulus package on September 24th that came into effect on October 7th. This package includes a policy-rate cut, mortgage-rate cuts, and 800bn yuan ($114bn) allocated in support of the stock market.

A month ago, the Chinese media company Caixin ran the headline that the PRC is considering issuing 6trn yuan in central government bonds. The funds raised from the bond sales are said to be used to stimulate the Chinese economy through consumer handouts and local-government refinancing, as well as 1trn yuan to recapitalize banks.

S&P 500 implied volatility (VIX) currently stands at a 5-month low of 14, while US Treasury implied volatility fell to a monthly low of 97.75. Equity and bond vol both made new local highs a month ago but collapsed after election day as anticipated. All sidelined market makers that were “risk off” into the election came back in to provide liquidity in the equity and bond markets, thus collapsing implied volatility everywhere. 

Sincerely,
The Hermetica Team