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 $44,175 at the time of writing.