IN THIS ISSUE

🌐 USDh across Bitcoin DeFi
🎥 Hermetica Hangout: Botanix Spiderchain
💰 USDh yield recap
📈 Weekly market review

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USDh Across Bitcoin DeFi

With USDh live on Stacks, we knew we had to partner with our friends Bitflow and Velar, who are tirelessly working to build Bitcoin DeFi.

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Hermetica Hangout: Botanix Spiderchain

The next Hermetica Hangout is coming up quickly! Are you ready?

This time we’ll be sitting down with Botanix to talk

Set your calendars for October 8, follow the Hermetica X account, and turn on notifications so you don’t miss a thing.

USDh Yield Recap

The market tanks, but USDh still prints — this week sUSDh holders earned a 18% APY return.

Stake USDh now to earn up to 25% APY!

Market Review

Bitcoin stalled again this week with a retest of $60,000, as the crab market continues.

The moving averages (MA) in Figure 1 are:

• 7-Day MA: $62,630

• 30-Day MA: $60,747

• 180-Day MA: $63,114

• 360-Day MA: $54,922

• 200-Week MA: $39,596

Price is back below the 7-day and 180-day MA just as before last week. The price stopped falling when it approached the 30-day MA at $60,750.

Bitcoin is back below the previous high set in August. Several MAs and levels were crossed on the way down. The current structure is neutral to bearish 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: +4.73%

• 3 months: +4.29%

• 6 months: -12.50%

• 12 months: +121.35%

Annual returns on Bitcoin remain very high at 121.35% 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 indicates poor price performance in the subsequent period. Traders are still capturing profit from the run-up 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 $194.5 million.

Average daily flows were $38.9 million. Flows were positive last Friday and Monday but fell precipitously the rest of the week, likely triggered by falling price. ETF flows tend to move in response to price moves rather than causing them.

Volatility

Bitcoin's implied volatility (DVOL) is currently at 57.39%. DVOL is currently at the 68th 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 strangles 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. In the last week DVOL was positively affected by the addition of several new expirations including an annual expiration in September 2025. 

These new expirations divide liquidity among more strikes and thus push out spreads and hence vol on all contracts.

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 7.25% to about 7.75% on average in the last week. The basis spread is higher than it was last week when price was at highs. Market participants are adding more to their long futures position as price falls.

The futures curve is in a normal contango from the front month (October 25th) onward. Front month (October 25th) APR is lower than all other maturities except front week (October 11th) and back week (October 18th). The basis rises into December and then flattens out there after. There is less than a 2% difference between the lowest and highest yielding maturities.

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

Two weeks ago, the Federal Reserve announced their first 50-basis point (bp) cut in the Fed Funds Rate, the minimum rate at which banks 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. So far, markets (especially precious metals and crypto, and speculative tech stocks) 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.

Other central banks are following the US’s lead and have now begun easing monetary policy. The Japanese Prime Minister Shigeru Ishiba has signaled that he does not want more rate hikes from the Bank of Japan (BOJ). The Japanese central bank is independent politicians, but they can still put pressure on the bank, especially since BOJ governor Kazuo Ueda is typically a dove on monetary policy.

The Chinese government announced a stimulus package on September 24th that will come into effect on 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.

The last few weeks have also seen the Israeli-Iran/Palestine conflict escalate with the Israeli assassination of Iran’s proxy army, Hezbollah’s, entire leadership followed swiftly by conventional HSBM warning shots by Iran against Israeli targets.

Israel assassinated Hezbollah’s leadership in preparation for an invasion of Lebanon which may start in a few weeks. As of now Israel has sent in scouts to secure footholds in southern Lebanon. Iran followed these assassinations up with a hypersonic ballistic missile (HSBM) strike on Israeli military targets. 90% of Iran’s HSBM went through Israeli’s anti-missile defense shield and hit their targets. Iran targeted buildings close to major Israeli military facilities as a “warning shot” for if/when Israel chooses to invade Lebanon formally. Israel is planning a counter strike directly on Iran in response to Iran’s deterrence missile barrage. Some have speculated that Israel will damage some of Iran’s oil infrastructure which has sent oil prices higher in the last few days.

Despite the flurry of activity in global markets the S&P 500 implied volatility (VIX) currently stands at only 19.23, while US Treasury implied volatility is at 101.16. Volatility is up from last week but still a lower high than the last high in September.

Sincerely,
The Hermetica Team