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.

Feb 16, 2022 at 12:16 p.m. UTC
Updated Feb 16, 2022 at 10:37 p.m. UTC

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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