IN THIS ISSUE

🌐 From bankless to blockchain
🎥 Hermetica Hangout: Botanix Spiderchain
💰 USDh yield recap
📈 Weekly market review

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From Bankless to Blockchain

Stablecoin adoption is skyrocketing globally, providing a new financial onramp to unbanked and underbanked communities.

A recent article from The Banker highlights how

The worldwide adoption of stablecoins speaks for itself: A new financial system is coming; one that will significantly unlock vast human potential, especially among today’s unbanked.

They don’t even touch on how a yield-bearing stablecoin like USDh will completely shift the landscape.

Read the full article for an even better glimpse into how stablecoins and blockchain are shaping the world:rewards.

Hermetica Hangout: Botanix Spiderchain

Missed the Hermetica Hangout on October 11? Don’t sweat it - we’ll give you the recap. 

This week we sat down with Botanix to talk:

Want to learn more? Check out the full recording on X:

The next Hermetica Hangout is almost here — set your calendars for October 15, follow the Hermetica X account, and turn on notifications so you don’t miss a thing.

USDh Yield Recap

Maybe "up to 25%" was too conservative — this week sUSDh holders earned a 33% APY return.

Stake USDh now to earn!

Market Review

Our crab market continues as the price sits at $61,599.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $61,689

• 30-Day MA: $62,124

• 180-Day MA: $62,861

• 360-Day MA: $55,592

• 200-Week MA: $39,812

Price is back below the “medium-term” 180-day MA, and on top of the “short-term” 7-day and 30-day MAs. A decisive break above 180-day MA at $63,000 is required to put price back into a bullish trend. As it is now, the MAs are signaling a neutral stance.

Bitcoin has remained below the previous high set in August. Several MAs and price levels were crossed on the way down. The current structure is neutral for Bitcoin price action.

Should the price reverse trend and increase, we can estimate the upside price levels where the price is likely to meet resistance: $63,000, $66,000, $68,000, $70,000, $72,000, and $74,000.

However, if price momentum continues downward, we estimate support levels to be at: $61,000, $60,000, $55,000, and $49,000.

Bitcoin returns are currently at:

• 1 month: +4.90%

• 3 months: +1.76%

• 6 months: -8.75%

• 12 months: +125.20%

Annual returns on Bitcoin remain very high at 125.35% despite prices falling over the past 6 months. Bitcoin’s 1-year return remains high and will remain high until Q4 2023 and Q1 2024 prices fall off the trailing moving average. High trailing annual returns followed by a downtrend in the intermediate period indicate poor price performance in the subsequent period. Traders are still capturing profit from the runup late last year and their selling will continue to put downward pressure on price. Other factors might cancel out this selling, but this signal remains bearish for Bitcoin.

BTC ETF Flows

Net BTC ETF inflows since last Friday were $120.5 million.

Average daily flows were $24.1 million. Flows were positive last Friday and Monday but fell slightly the rest of the week, triggered by falling prices. ETF flows tend to move in response to price moves rather than cause them.

Volatility

Bitcoin's implied volatility (DVOL) is currently at 55.96%. DVOL is currently at the 58th percentile.

DVOL remains low as price moves back down into the established range. Market makers’ existing positions benefit from this move back down since their short option positions will move farther out of the money. This will in turn encourage more options selling and suppress vol even more over the next few weeks.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all maturities, and has risen slightly from 7.75% to about 8.5% on average in the last week. The basis spread is higher than it was two weeks ago when prices were at highs. Market participants are adding more to their long futures position as price falls.

The futures curve is in a slightly inverted contango from the front month (October 25th) onward. Front month (October 25th) APR is lower than all other maturities including front week (October 18th). The basis rises into December and then declines slightly thereafter. There is less than a 2% difference between the lowest and highest yielding maturities. This curve is relatively bullish since close maturities are rising relative to farther maturities. If October would rise above all other maturities that would make the curve more bullish.

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

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

Three weeks ago, the Federal Reserve announced their first 50-basis point (bp) cut in the Fed Funds Rate.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. So far, markets (especially precious metals) have reacted well to the 50 bp cut, but that could reverse quickly if signs of a financial crisis or recession begin to manifest in Q4. Typically, by the time the Fed cuts there is a strong undercurrent of deflation in the economy and therefore it is too late to prevent a recession with mild monetary stimulus.

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 has come into effect as of October 7th. This package includes a policy-rate cut, mortgage-rate cuts and 800bn yuan ($114bn) in support of the stock market. There are also rumors of 2trn yuan in fiscal spending for consumer handouts and local-government refinancing, as well as 1trn yuan to recapitalize banks. The Hong Kong stock exchange is up a blistering 30% in less than a month, which would even be impressive for Bitcoin. This marks a major C-change in Chinese monetary and fiscal policy which has been extremely restrictive since 2020. Real commodities like oil, gold, copper, etc. have all benefited from Chinese easing while stock markets and crypto have remained more subdued.

S&P 500 implied volatility (VIX) currently stands at only 20.49, while US Treasury implied volatility is at 116.56. Equity vol and bond vol made a high this week, but still below highs from a few months ago.

Sincerely,
The Hermetica Team