IN THIS ISSUE

💸 90% Positive Funding in Q3
🪙 Citi Projects $1.9T Stablecoin Supply
📰 Token 2049 Updates
💰 USDh Yield Recap
☎️ Hermetica Hangout: Zest
📈 Weekly Market Review

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90% Positive Funding in Q3

BTC perpetual markets posted positive funding on 90% of trading days in Q3.

USDh captures these payments through its delta-neutral strategy. Yield is earned and distributed to stakers without taking on market risk.

See our APY Dashboard for a full breakdown of yield performance trends.

Citi Projects $1.9T Stablecoin Supply

Citi Institute, a leading global research group, now projects stablecoin supply to reach $1.9T by 2030, up from previous forecasts.

At full scale, stablecoins are projected to support over $100T in annual transaction volume.

USDh is ready, are you?

Token 2049 Updates

Key news from Singapore this week:

🔸 Starknet announced  BTCFi, bringing Bitcoin staking and DeFi to its L2
🔸 BitMEX Co-Founder predicts stablecoins will unlock trillions in new liquidity
🔸 Robinhood Founder predicts tokenization will consume the entire financial system

More ecosystems are moving toward the future we envisioned in our manifesto: a unified and yield-driven economy powered by Bitcoin.

USDh Yield Recap

USDh paid 2% APY in week 40. All you had to do was hold a Bitcoin-backed stablecoin.

Sometimes the simplest trade is the best trade.

Hermetica Hangout: Zest

This week, we hosted Zest Protocol for a discussion on Bitcoin lending and how you can earn BTC yield directly with Bitcoin. Catch the recording here.

More to come next week. Set your reminder now.

Market Review

Bitcoin rallied this week, returning to the top of its July through September range over the past five days. Aggregated altcoin market caps climbed from $1.52T to $1.68T, while Bitcoin dominance fell 0.19%.

• DVOL remained relatively unchanged this week, showing a slight decrease to 37.12%

• The average equal-weighted futures basis spread increased to 7.87% APR

• The futures curve flattened and inverted, with the front month showing the highest APR

• Perpetual futures funding rates peaked at 45.99%

The moving averages (MA) in Figure 1 are:

• Current Price: $120,000

• 7-Day MA:  $115,000

• 30-Day MA: $114,000

• 180-Day MA: $107,600

• 360-Day MA: $98,500

• 200-Week MA: $53,300

Bitcoin sharply reversed course and is now trading above both the 30-day and 7-day moving averages (MAs).

Trend Following

Returns for a Bitcoin 7-day and 30-day long trend-following portfolio are down 2.91% from January’s ATH. The portfolio recovered losses over the past three days due to the recent uptrend. Low liquidity leaves Bitcoin vulnerable to sharp swings that can mislead quantitative systems, triggering false buy or sell signals from random noise that would stay below thresholds in more liquid markets.

BTC ETF Flows

Net inflows totaled $1.83B this week, up $2.09B from last week’s $257M in outflows. Ethereum ETFs saw inflows of $814M.

Volatility

Bitcoin’s implied volatility (DVOL) fell slightly from 37.98% to 37.12% this week and remains off multi-year lows amid market weakness. Low implied volatility usually signals weak crypto demand, but it’s also currently being pushed down long term by systematic market maker hedging on Deribit.

TradFi Bitcoin products, such as ETFs and portfolio companies, are increasingly selling call options for yield, creating systematic downward pressure on option prices and implied volatility. Yield Max’s $MSTY, for instance, sells $4.5B in notional calls on Strategy stock monthly and quarterly. Many hedge funds execute similar trades on miners and Bitcoin ETFs. Market makers buy these calls and resell them on Deribit to lock in spreads, keeping DVOL capped even when rising prices would typically trigger delta hedging.

Basis Spread

The basis spread, or the price of a futures contract over its spot price, is positive across all maturities. The average (equal-weighted) basis spread rose from 5.53% APR to 7.87% APR, reaching one-month highs.

The futures curve is in normal contango, with the front month below later maturities. The spread between the lowest- and highest-yielding contracts narrowed sharply from 5.73% to 0.47%, similar to the activity seen between August 15 and 22. Futures open interest is 33% below December levels despite higher spot prices, while options open interest is at all-time highs after adjusting for the recent expiration.

Macro

On September 17, the Fed cut the federal funds rate by 25 bps at its 6th FOMC meeting. Canada cut interest rates by 25 bps on September 17th, following in lockstep with U.S. interest rate policy. The European Central Bank (ECB) cut rates by 25 bps on June 6th but has not cut since. The Swiss National Bank cut rates by 25 bps to 0% in June, while the People’s Bank of China (PBOC) left rates unchanged. The Bank of England (BOE) lowered rates by 25 bps on August 7th, and the Bank of Australia cut rates by 25 bps on August 12th.

The Dollar Index ($DXY) was 97.77 on Thursday evening, rebounding from a 3-year low of 96.25 on September 17. 30-year Treasury yields are slightly lower week-over-week at 4.7%.

Equity market implied volatility and U.S. Treasury bond implied volatility remain near long-term steady states. The VIX is 16.28%, down from 16.88% last week, while the interest rate–adjusted MOVE index (MOVE/10Y yield) sits near multi-year lows at 17.36%.

Sincerely,
The Hermetica Team