As the Fed rate hike in March looms with unclear results, analytics firm Glassnode sees multiple signals that investors are bracing for a storm.
According to Glassnode’s on-chain data analysis, Bitcoin (BTC) investors are hedging risks in order to avoid interest rate hikes by the US Federal Reserve in March.
The most noteworthy trend in Bitcoin right now, according to Glassnode’s “The Week On-Chain” email from Monday, is the flat futures term structure through March. The reason for this is “investor anxiety about the larger economic implications of a stronger US currency.”
Writer Michal van de Poppe, the rate hike has already been factored into spot markets, but the longer-term impact is still unknown. As a result, Glassnode has noticed that investors are taking precautions to shield themselves from the low possibility of a negative outcome.
“Investors appear to be deleveraging and using derivatives markets to hedge risk and buy downside protection, with an eye on the Fed rate hikes predicted in March.”
While the data clearly reveals an objective flat area on the futures term structure curve, it also suggests that investors aren’t anticipating a large bullish breakout until the end of 2022. At the moment, the annualised premium on futures is only 6%.
The value over a dollar that a person will pay for the risk of a futures contract is known as the annualised premium. A larger premium suggests a greater willingness to take risks.
According to Glassnode’s on-chain data analysis, Bitcoin investors are hedging risks in order to be safeguarded against Federal Reserve interest rate hikes in March.
The gradual but consistent de-leveraging through voluntary futures position closures is more indication of a lack of investor confidence. As a result of this de-risking, overall futures open interest has dropped from 2% to 1.76 percent of the whole crypto market capitalization, according to Glassnode. This pattern suggests a “desire for safety, conservative leverage, and a cautious approach to approaching storm clouds.”
Traditional assets, such as bonds, will face tough times ahead, according to Tom Lee, managing partner at Fundstrat. On Monday, he told CNBC that due to an interest rate reversal, “you’re sure to lose money owning bonds for the next 10 years… that’s about $60 trillion of the $142 trillion.”
However, according to Lee, the $60 trillion is expected to be invested in cryptocurrency, where investors can continue to earn rates that are comparable to or even better than those gained from bonds. He stated, ”
“I think what’s more likely is a lot of speculative capital from equities… it’ll actually be tracing its origins to a rotation out of bonds and it’ll eventually flow into crypto,” says one analyst.
The outflows of money continue.
Despite market players plainly reducing risk ahead of the Fed rate hike, Bitcoin exchange outflows continue to far outnumber inflows. Net outflows have averaged 42,900 BTC each month over the last three weeks. This is the biggest pace of outflow since October, when BTC reached a new all-time high of over $69,000 in November.
Long-term Bitcoin holders (those who have kept their Bitcoin inactive for at least 156 days) have a solid grip on the circulating supply, with around 13.34 million BTC in their possession. Long-term holders have only surrendered 175,000 BTC since the October 2021 high, indicating support for the recent $33,000 low and need for more coins.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.