Crypto investors hedging out risks ahead of March rate hike

Glassnode’s analysis of on-chain data shows that Bitcoin investors hedge against risks to remain protected from Federal Reserve interest rate increases in March.

The Week On-Chain newsletter by Glassnode, February 14th, shows that Bitcoin’s most important trend is the flat futures structure through March. This can be attributed to investor uncertainty about the economic impact of tighter US dollars.

Michael van de Poppe from Cointelegraph says that the rate hike has been priced in to spot markets. However, it is not yet clear what long-term effects it will have. Glassnode noted that investors are taking precautions to reduce the risk of a possible low-downside.

“It seems that investors are deleveraging and using derivatives markets for risk hedge and protection against downside, while keeping a close eye on the Fed rate rises expected in March.”

The data clearly indicates a flat area on futures’ term structure curve. However, it also suggests that investors don’t expect a major bullish breakout before 2022. The current annualized premium for futures is just 6%.

The annualized premium is the amount a person will pay to take on the risk of futures contracts. Higher premiums indicate a greater risk appetite.

Glassnode’s analysis of on-chain data shows that Bitcoin investors hedge against risks to remain protected from Federal Reserve interest rate increases in March.

The gradual, but steady deleveraging of futures positions through voluntary closing is another sign of investor anxiety. Glassnode believes this has led to a drop in futures open interest, which is now 2% to 1.76%. This trend suggests a preference for protection, conservative leverage and a cautious approach towards storm clouds.

Tom Lee, Fundstrat’s managing partner, agrees that traditional investments such as bonds face tough times. CNBC spoke to him on February 14th that because of a reversed interest rate, “for 10 years you’re guaranteed money owning bonds… That’s almost $60 trillion out of the $142 trillion.”

Lee said that crypto will be able to continue to generate yields that match or exceed those earned from bonds, with a potential $60 trillion. He stated:

“I believe that speculative capital is more likely than equities… It’s going be tracing its roots back to a rotation of bonds, and eventually flowing into crypto.”

Continued outflows of exchange

Market participants are clearly trying to reduce risk ahead of the Fed rate rise, but Bitcoin outflows are still far greater than inflows. Over the last three weeks, net outflows reached 42,900 BTC per monthly. This is the highest outflow rate since October last year, as BTC prices reached a record high of $69,000 in November.

The circulating supply of Bitcoin is being controlled by long-term holders (those who have held their Bitcoin dormant at least 156 day) with a total of 13.34 million BTC. Long-term holders of Bitcoin have only given up 175,000 BTC since the October 2021 high. This shows support for the $33,000 low and the demand for more coins.

Related: Bitcoin price remains in critical zone of’make or break’ as bulls defend $42K

According to Cointelegraph, Bitcoin is up 4.19% in the last 24 hours and trading at $43,552

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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