Bitcoin Traders Preparing for Tumultuous March, Glassnode Says

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.