The Analytics Firm that goes by the name Glassnode has actually managed to see several different signs that some crypto investors actually placing themselves in for a pretty rough storm since the Fed rate hike that is supposed to take place in March might have some uncertain results in the end.
Going by the best crypto news sites Reddit, there has been some analysis on Glassnode and it shows properly that the investors of Bitcoin are surely hedging out different risks in order to have protection against the Interest Rate hikes from the Federal Reserve that is supposed to take place in March.
The Week On-Chain newsletter of Glassnode released on the 14th of February has made an indication that this significant trend taking place in the world of Bitcoin (BTC) right now is the flat futures term structure through March. This is strongly credited to “investor uncertainty regarding the wider economic impact of a tighter US dollar.”
The rate hike is definitely valued in spot markets, according to Cointelegraph donor Michaël van de Poppe, but the effect in the longer term it will have on the economy is definitely still unclear. As a result, Glassnode made an observation that investors are taking these steps in order to properly protect themselves from the possibly low downside risk.
He said, “It appears that investors are deleveraging and utilizing derivatives markets to hedge out risk, and buy downside protection, with a keen eye on the Fed rate hikes expected in March.”
While the data surely indicates a particularly flat area on the futures term structure curve, it suggests somewhat more subtly that investors are not expecting a significant bullish breakout through the end of 2022. The annualized premium on futures is only at 6% right now.
More evidence of a lack of investor confidence is the slow but steady deleveraging through voluntary closure of futures positions. Such de-risking has resulted in what Glassnode sees as a decline in total futures open interest from 2% to 1.76% of the total crypto market cap. This trend hints at a “preference for protection, conservative leverage, and a cautious approach to storm clouds on the horizon.”
Fundstrat managing partner Tom Lee agrees that there are hard times ahead for traditional investments like bonds. He told CNBC on Feb. 14 that due to an interest rate reversal, “for the next 10 years, you’re guaranteed to lose money owning bonds… that’s almost $60 trillion of the $142 trillion.”
However, Lee noted that the $60 trillion is likely to go into crypto where investors can continue to earn yield that matches or may even outperform the yields they earned from bonds. He said: “I think what is more likely is a lot of speculative capital from equities… it’s really going to be tracing its roots to a rotation out of bounds and it’s going to eventually flow into crypto.”
The Continuation of Exchange Outflows
Even after having clearly shaded the risk ahead of the Fed rate hike, the outflows of Bitcoin continuing from the exchanges are still hugely overshadowing inflows. For the past three weeks, the different net outflows have actually managed to reach a rate of 42,900 BTC per month. Now, this can be seen as the highest rate of outflow since last October as the price of BTC led up to a new all-time high of around $69,000 in November.
Long-term holders of Bitcoin (those that have kept their Bitcoin dormant for at least 156 days) are upholding proper control over the regulating supply by holding about 13.34 million BTC. Since the October 2021 high, long-term holders have relinquished only 175,000 BTC, showing support for the recent $33,000 low and demand for more coins.