🗞️ The Clock on Cryptography
💸 STRC Dividends Go Daily
💰 Yield Recap
📈 Weekly Market Review

This week, I wrote about a risk I think most of us are underestimating.

AI is solving mathematical problems that resisted humans for decades and helping reduce the resources needed for quantum attacks. That puts pressure on the cryptography securing digital assets and financial infrastructure from two directions at once. The lack of urgency surprised me, so I went down the rabbit hole in my latest piece.

On the other side of the week, STRC shareholders approved daily dividends. Starting November 1, dividends accrue every calendar day at the same 12% annual rate. Strategy also reported $5.07 billion in USD assets and $2.04 billion of STRC repurchases this year, reinforcing STRC as a more liquid form of Bitcoin-backed credit. USDh already earns from STRC, so the daily cadence flows through automatically.

USDh was unaffected by the Binance security incident.

There were no open USDh positions on Binance when the incident occurred, and collateral remains held off-exchange with Ceffu. No USDh backing assets were exposed.

More on USDh’s security and settlement architecture.

AI is advancing the threat to cryptography on two fronts at once.

AI systems are getting better at mathematics. OpenAI’s latest models are already making progress on problems that resisted mathematicians for years, raising the possibility that some cryptographic assumptions may be challenged by mathematical shortcuts.

Quantum is advancing in parallel. AI is improving error correction, while better algorithms are reducing the hardware required for potential quantum attacks. Google recently cut its estimate of the qubits needed to attack Bitcoin’s cryptography by roughly 20x.

AI is improving both the search for mathematical shortcuts and the machines that could exploit them. If both continue progressing together, the runway for today’s cryptography gets shorter.

Our founder, Jakob, lays out how he thinks this plays out across cryptography and digital assets, and how he is preparing now.

STRC dividends are going daily.

Strategy shareholders approved the amendment to move STRC from semi-monthly to daily dividends. Starting November 1, dividends accrue every calendar day, including weekends and holidays, with the first payment on November 2. The annual dividend rate remains 12%.

Strategy also reported $5.07 billion in USD assets, enough to cover ~3.4 years of preferred dividends and interest obligations, alongside $2.04 billion of STRC repurchases this year. The daily cadence will reduce reinvestment lag, improve liquidity and support price stability.

USDh already earns from STRC as part of its reserve strategy. Daily dividends make that income stream more continuous, with yield accruing every day instead of twice a month.

Daily STRC yield flows automatically into USDh. Stake USDh to earn.

A little more Bitcoin. A little more dollars.

That's a good direction for any portfolio.

USDh and hBTC delivered on both fronts this week.

Bitcoin fell to $76,500 after a major security breach at Binance triggered widespread selling and forced liquidations. BTC is now trading around $77,462, down 4.9% from last week’s $81,479. Binance estimates unauthorized withdrawals affected approximately $6.3B in assets, with around $3B frozen on-chain. The breach triggered $1.53B in crypto liquidations over 24 hours, including $1.29B in long positions, with Bitcoin accounting for ~$499M.

Selling pressure was already building before the breach. BTC spent much of the week between $79,000 and $81,700. Buy-side support around $80,000 reduced and roughly $42M in bids shifted toward $78,000-$79,000. The Fed’s decision to hold rates at 3.75%-4.00% added another source of pressure. Even with over $400M in spot Bitcoin ETF inflows, demand was not strong enough to hold the recovery. BTC has now fallen below both its estimated $81,500 ETF cost basis and the $77,900 True Market Mean, making renewed spot demand the key requirement for stabilization.

Data Summary:

Simple Moving Averages (SMAs) in Figure 1:

Bitcoin is trading around $77,462, below its 7-day SMA at $79,690 and 30-day SMA at $82,292, following the breakdown below $80,000. Immediate support sits at the 360-day SMA near $76,779, followed by this week's low around $76,500. The short-term holder cost basis near $75,800 is another important support level. Deeper structural support remains at the 180-day SMA near $72,719.

Immediate resistance sits near $77,900, around Glassnode's True Market Mean, followed by the 7-day SMA at $79,690 and the former $80,000 support level. Above that, resistance stands at $81,500, near the average U.S. spot Bitcoin ETF cost basis, followed by the 30-day SMA at $82,292. Reclaiming $80,000 would improve short-term momentum, while a sustained move above $82,292 would strengthen the recovery. Conversely, losing $76,500 would expose $75,800, with a further decline increasing the risk of a move toward $72,719.

Net inflows totaled $440.74M this week.

U.S. spot Bitcoin ETFs recorded four consecutive inflow sessions, improving from $304.73M of net inflows last week. Cumulative net inflows rose to $57.62B from $57.18B, while total net assets declined slightly from $104.43B to $104.27B. October flows have now turned positive at $128.30M, following $2.65B of net inflows in September.

DVOL rose to 40.01% from 37.13% last week as Bitcoin’s decline and the Binance security breach drove demand for options protection. The index briefly reached 44.25% before retreating, marking a repricing of expected volatility after several relatively quiet weeks.

The increase was concentrated in short-dated options. One-week at-the-money implied volatility jumped from 33.6% to 46% after the breach before easing toward 42%, while three-month volatility remained near 38%. One-week put skew briefly reached 18 percentage points on October 30, showing aggressive demand for downside protection, before falling from that peak. More than $10B in Bitcoin options also expired that day at $78,119.

Bitcoin’s equal-weighted futures basis fell to 5.55% from 5.84% last week as the near-term premium continued to decline. November 6 leads at 5.76%, while the remaining observed maturities are tightly grouped between 5.40% and 5.60%.

The curve is still positive, meaning futures continue to trade above spot, but it is much flatter than last week. That points to more balanced demand across maturities and less appetite for short-term leveraged exposure after the selloff. The expiry of the October 30 contract, previously at 7.26%, also pulled the weekly average lower.

The Federal Reserve held rates at 3.75%-4.00% on October 28. The decision came as growth remained firm and inflation stayed above target. Third-quarter GDP grew at a 3.4% annualized rate, while September PCE inflation rose to 3.6% year-on-year and core PCE reached 3.1%. Despite that backdrop, the 10-year Treasury yield fell from 5.05% to below 5% as investors moved into government bonds during the technology selloff.

AI infrastructure spending was a major source of that selling. Alphabet reported strong cloud growth, but $51.4B in quarterly capital expenditure pushed free cash flow negative, while Amazon’s trailing twelve-month free cash flow swung from a surplus to a $42.4B deficit as infrastructure spending accelerated. Investors are increasingly questioning whether AI revenues can grow quickly enough to justify the scale of spending on chips, data centers, power and financing. Heavy borrowing for those projects also adds to demand for capital while government borrowing costs remain elevated.

Energy added another inflation risk, with Brent approaching $117 per barrel as renewed Middle East tensions raised concerns about supply and shipping. Bitcoin fell toward $77,500 despite $440.74M in spot ETF inflows through October 29, as selling across technology markets and the Binance security breach added pressure. Falling Treasury yields offered little support because the decline reflected demand for safety rather than easier monetary conditions. A sustained Bitcoin recovery now depends on stronger spot buying and broader market stabilization.

Sincerely,
The Hermetica Team