On-chain data analysis by Glassnode shows that Bitcoin investors are hedging against a Fed rate hike in March.
Glassnode’s The Week On-Chain newsletter from Feb. 14 suggests that the most important trend for Bitcoin (BTC) right now is the flat futures term structure as of March. This was largely due to "investors' uncertainty about the broader impact of a stronger dollar on the economy."
According to Cointelegraph contributor Michaël van de Poppe, the rate hike has already been priced in in spot markets, but its long-term impact is unclear. As such, Glassnode observes, investors are taking steps to protect themselves from potentially lower downside risks.
"Investors appear to be deleveraging and using derivatives markets to hedge risk, buy downside protection and keep an eye on the Fed's expected rate hike in March."
While the data clearly shows an objectively flat area on the futures term structure curve, it more subtly suggests that investors do not expect a significant bullish breakout by the end of 2022. The annualized premium on futures is currently just 6%.
The annualized premium is the value in excess of one dollar that a person pays for the risk of a futures contract. A higher premium indicates a higher risk appetite.
On-chain data analysis by Glassnode shows that Bitcoin investors are hedging against a Fed rate hike in March.
More evidence of investor confidence is the slow but steady deleveraging through voluntary liquidation of positions. This de-risking has led Glassnode to see total futures open interest fall from 2% of the total cryptocurrency market cap to 1.76%. The trend hints at a "promotion towards protection, conservative leverage, and a cautious approach to impending dark clouds".
Fundstrat managing partner Tom Lee agrees that traditional investments such as bonds will face tough times. On Feb. 14, he told CNBC that because of the reversal in interest rates, "you're definitely going to lose money holding bonds over the next 10 years ... that's almost $60 trillion of the $142 trillion."
Lee noted, however, that $60 trillion could go to cryptocurrencies, where investors can continue to earn returns that match or exceed bond yields. He said:
"I think it's more likely that there's a lot of speculative capital coming out of equities ... that's really going to be traced back out of bonds and eventually into crypto."
Exchange outflows continue
Bitcoin outflows from exchanges still vastly outpace inflows, despite market participants apparently reducing risk ahead of the Fed’s rate hike. Over the past three weeks, net outflows have reached 42,900 BTC per month. This is the highest outflow since October last year. In November last year, the price of Bitcoin hit an all-time high of $69,000.
Long-term Bitcoin holders (those who have dormant their Bitcoins for at least 156 days) maintain steady control over the circulating supply by holding approximately 13.34 million Bitcoins. Long-term holders have shed just 175,000 BTC since the October 2021 high, showing support for the recent $33,000 low and demand for more BTC.
Bitcoin is currently trading at $43,552, up 4.19% over the past 24 hours, according to data from Cointelegraph.
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