Bitcoin investors increase protection ahead of Fed hike in March

Analysis of online data from Glassnode shows that Bitcoin investors are hedging their risks in the face of the US Federal Reserve’s interest rate hikes in March.

Glassnode’s The Week On-Chain newsletter on Monday shown However, the most important bitcoin trend right now is the flat futures forward structure until the end of March. This is attributed to “investor uncertainty about the economic impact of a strengthening USD”.

According to analyst Michaël van de Poppe, the rate hike has had an impact on the spot market, but the longer-term impact on the market remains unclear. As a result, investors are taking steps to protect themselves from potential downside risks.

“It looks like investors are deleveraging, using the derivatives markets to hedge and buy in bear markets, and very concerned about the Fed’s expected rate hikes in March.”

While the data suggests that the futures structure curve is flattening, Bitcoin investors do not expect the market to see strong growth until the end of 2022.

The annual premium is the amount an investor pays for the risk of the futures contract. A higher premium indicates a higher risk preference.

Analysis of on-chain data from Glassnode shows that Bitcoin investors are hedging to protect against the March Federal Reserve rate hikes.

Bitcoin futures market structure | Source: Glassnode

Investors are increasingly lacking in confidence in the market as investors gradually reduce leverage by voluntarily closing futures positions. The elimination of risk caused the total number of open futures interest to fall from 2% to 1.76% of the total market cap, Glassnode said. This trend shows that investors are “prioritizing capital protection, using leverage cautiously, and being cautious in the face of sharp market volatility.”

Fundstrat’s managing partner, Tom Lee, agrees that traditional investments like bonds will face difficulties going forward. He told CNBC on Monday that because of the rate reversal, “investors will lose money owning bonds over the next 10 years, with nearly $60 trillion out of a total of $142 trillion.”

However, Lee notice That $60 trillion has the potential to flow into crypto, where investors can continue to earn a consistent return, or potentially even higher than the return they get from bonds.

“I think speculative capital will flow out of the stock market and eventually into crypto.”

Capital flows continue to flow out of the stock exchanges

Although market participants took hedging actions before the Fed hiked interest rates, the amount of Bitcoin leaving exchanges far outweighed the amount of BTC coming in. Over the past three weeks, outflow from the exchange has reached 42,900 BTC per month. This is the highest rate since October of last year, after which BTC established an ATH at $69,000 in November.

The amount of bitcoin flowing out of exchanges | Source: Glassnode

Long-term Bitcoin holders (those who have held Bitcoin dormant for at least 156 days) maintain constant control over the circulating supply and hold around 13.34 million BTC. Since the indicator’s peak in October 2021, long-term holders have given up just 175,000 BTC, suggesting that investors entered the market as the price hit a bottom in the $33,000 region and the need to accumulate more BTC, increases.

Bitcoin is currently up 4% in the last 24 hours and is currently trading at $44,173.

BTC price chart | Source: TradingView

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