IN THIS ISSUE

🌐 Stablecoins across the globe
🟠 A Bitcoin builders renaissance
💰 USDh yield recap
📈 Weekly market review
🎥 Hermetica Hangout: Coffer

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Stablecoins Across the Globe

As crypto adoption continues to skyrocket, stablecoins act as a key element of many underbanked economies.

In a recent report, Chainalysis discovered that stablecoins make up 43% of Sub-Saharan Africa's total transaction volume with 180% growth, year-over-year. This rising adoption is attributed to stablecoins ability to:

Learn more about the rising adoption and emerging use cases for Stablecoins across the globe in the full report:

A Bitcoin Builders Renaissance

With the Nakamoto Upgrade on the horizon, Stacks is set to continue the Bitcoin builders renaissance that started with Ordinals in 2023.

In preparation for the next Stacks milestone, Grayscale has released a report on the Stacks ecosystem, covering market cap, the token, use cases, and investment opportunities.

Check out more details here:

USDh Yield Recap

We promise you won’t get tired of earning! This week sUSDh holders earned a 20% APY return.

Stake USDh and start earning today:

Hermetica Hangout: Coffer

Set your calendars for October 29 — the next Hermetica Hangout with Coffer is almost here. Follow the Hermetica X account, and turn on notifications so you don’t miss a thing.

Coffer will join us to talk:

Market Review

Prices remain similar to last week, currently sitting at $67,788.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $67,838

• 30-Day MA: $64,679

• 180-Day MA: $63,086

• 360-Day MA: $56,938

• 200-Week MA: $40,261

The price is currently above all moving averages except the 7-day MA. Last week, Bitcoin decisively moved above the 180-day MA at $63,000, signaling a shift back to a bullish trend. For now, the moving averages indicate a bullish outlook, though this could be invalidated if the 30-day and 180-day MAs cross below the price.

Bitcoin is trading around the high last seen in July of this year. In just one week, it has surpassed all major moving averages and is now approaching the key $68,000 level. A sustained move above $68,000 with high volume for at least a week would confirm the end of Bitcoin's 9-month downtrend. The current outlook appears cautiously optimistic, leaning positive to neutral.

Each week where the price remains between $66,000 and $68,000, it decreases the likelihood of a breakout and raises the chance of a retest of lower levels. We estimate that this breakout probability decreases by 5% per week. Presently, there’s a 70% subjective probability that prices will reach all-time highs ($74,000) by year-end.

If the price advances, potential resistance levels are projected at $68,000, $70,000, $72,000, and $74,000. Conversely, if the trend fails to break out, expected support levels are at $66,000, $64,000, $61,000, $60,000, $55,000, and $49,000.

Bitcoin returns are currently at:

• 1 month: -4.68%

• 3 months: -11.55%

• 6 months: -4.50%

• 12 months: 76.14%

Annual returns on Bitcoin remain strong at 76.14%, despite a downtrend over the past 9 months. Bitcoin’s 1-year return will stay elevated until October 2023 - February 2024 when prices are removed from the dataset. In just the last week, Bitcoin’s trailing annual returns dropped from 109.62% to the current 76.14%, as the start of last year’s bull run exited the calculation.

Historically, periods of above-average returns are often followed by below-average returns. In Bitcoin’s case, traders continue to realize profits from the rally late last year. However, after enduring 9 months of underperformance, and with high-return periods fading from the data, this metric is poised to turn bullish soon. Given favorable readings from other indicators and supportive macroeconomic factors, the timing is ideal for this shift.

Currently, the signal is neutral, but it is expected to turn bullish by the end of November, assuming no rally occurs before then.

BTC ETF Flows

Net BTC ETF inflows since last Friday reached $869.3 million, with an average daily inflow of $173.86 million—marking a significant week for Bitcoin ETF activity.

There are a couple of key drivers behind these elevated inflows:

Volatility

Bitcoin's implied volatility (DVOL) is at 55.96%, in the 54.8th percentile. Despite the price nearing the top of the long-term bearish range, DVOL remains low. This suggests either limited demand for options relative to market maker liquidity or that market makers are net long delta, minimizing concerns over rising prices. It could also indicate that market makers anticipate a price mean reversion back to the long-term range's center.

Other derivatives metrics offer clarity. The put/call ratio has slightly increased from 0.43 to 0.46 since early October, with higher ratios focused on near-term expirations, signaling a growing interest in puts. If traders were buying puts as a hedge, market makers would typically short futures to offset exposure. However, the futures curve suggests the opposite—market makers are buying futures, likely driven by increased put selling.

Given this information, we can conclude that market maker positioning isn’t the driver behind the bullish market trend, which explains why DVOL remains so low despite other derivative metrics such as futures being in a bullish configuration. Most likely the bullish futures curve is being caused by large spot purchases in other markets driving market makers to hedge their short spot delta with perps and traditional futures.

Basis Spread

The basis spread—the premium of futures prices over spot prices—has climbed from 9.5% to 10.5% over the past week, and from 7.5% to 10.5% in just three weeks. This increase comes despite prices remaining relatively stable, indicating that market participants are increasing their long positions, boosting systematic leverage.

This heightened leverage sets the stage for a significant price move and a spike in implied volatility in the coming weeks. While it's unclear if this will lead to a bullish breakout or a sharp decline, current metrics suggest a bullish outcome is more probable.

The futures curve is in an inverted contango from the front month (November 29th) onward. Front month (November 29th) APR is higher than all other maturities. The basis falls continuously from front week (November 1st) to the September 2025 expiration in a smooth curve. There is about a 4% difference between the lowest and highest yielding maturities. The spread between maturities has been widening (curve steepening) in the last few weeks, this indicates demand for closer maturities are outstripping supply and become detached from Bitcoin’s long run APR. The more detached close maturities become the more bullish the market is on near term price action.

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. This is exactly 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

A month ago, the Federal Reserve announced a significant 50-basis point (bp) cut to the Fed Funds Rate, which influences overnight bank lending rates. Before the announcement, prediction markets were split: 53% expected a 50 bp cut, while 47% anticipated a 25 bp cut. The larger cut suggests Powell may have recognized a delay in starting the rate-cutting cycle. Markets, especially precious metals, initially responded positively to the cut, but this optimism could reverse if signs of financial instability emerge in Q4. Historically, rate cuts often coincide with deflationary pressures, meaning it's frequently too late to prevent a recession with minor monetary adjustments.

Other central banks have followed suit, easing monetary policy. China, for instance, rolled out a stimulus package on September 24th, effective October 7th, including policy-rate and mortgage-rate cuts, plus 800 billion yuan ($114 billion) in stock market support. Last Tuesday, Caixin reported that China is considering issuing 6 trillion yuan in central government bonds, with funds earmarked for consumer handouts, local government refinancing, and 1 trillion yuan for bank recapitalization. The Hong Kong stock exchange surged 30% in a month—a significant shift given China’s restrictive stance since 2020—boosting global liquidity.

The U.S. presidential election is just over a week away, historically a period of muted price gains and elevated volatility. Fund managers tend to reduce risk exposure in the face of uncertain events, holding cash and trimming positions. Combined with a cautious approach at year-end to safeguard bonuses, election years often see lackluster financial performance. Post-election, sidelined capital usually returns to the market, easing volatility and pushing prices upward.

Crypto betting platforms like Polymarkets have seen a surge in activity, with over $2 billion in open positions for the election outcome. Odds shifted sharply in favor of Trump last week, from an even split with Kamala Harris to a 60/40 advantage. While his crypto-friendly stance may have buoyed Bitcoin slightly, it’s unlikely to be the main driver.

On the volatility front, the S&P 500's implied volatility (VIX) is relatively low at 19.26, while U.S. Treasury implied volatility has jumped to 117.48. Equity volatility has eased after peaking a few weeks ago, but bond volatility reached a new high this week. Concerns persist over future interest rates, as some speculate they may not decrease as quickly as September's Fed cut suggests. This uncertainty has led to a bond sell-off, raising bond rates and volatility. We expect these levels to remain stable until after the election unless a major geopolitical conflict arises.

Sincerely,
The Hermetica Team