Bitcoin Traders Preparing for Tumultuous March, Glassnode Says
Traders are de-leveraging because of expected turbulence coming from rate hikes and the potential conflict in Ukraine.
Bitcoin traders are pricing in uncertainty via the derivatives market. However, on-chain supply of the crypto remains stable, indicating the market is ready to “ride out the storm ahead.” according to a report by on-chain data provider Glassnode.
- There are no signs of a mass exit driven by fear as data shows that both spot holdings and fund flows remain stable, Glassnode said Monday.
- “This speaks to a clear investor uncertainty regarding the wider economic impact of a tighter U.S. dollar, given the preceding decades of loose monetary policy,” Glassnode said.
- Given an expectation of volatility due to the U.S. Federal Reserve's expected rate hike, traders are reducing their exposure to leveraged assets via a process called deleveraging.
- This has resulted in what Glassnode calls a "flattening" of the futures term structure, meaning the estimated price of bitcoin at a future date is getting lower and lower.
- Futures that expire at the end of 2022 currently have a strike price of $44,200, which represents a 6% annualized premium Glassnode calls “very modest.”
- “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. Meanwhile, overall on-chain supply dynamics appear to be in a form of equilibrium,” Glassnode wrote.
- Deleveraging is being done by traders closing positions, not a forced closure due to a liquidation cascade. Liquidation cascade occurs when the asset price experiences a steep decline resulting in long derivative positions being closed, which further lowers the price of the underlying asset.
- Glassnode also notes there’s a “remarkably resilient cohort of hodlers” as the supply of bitcoin held by long-term holders continues to stay stable.
- The price of bitcoin was down 0.2% at around $44,200 at the time of writing.
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