The proposed Feds interest rate hike in March sees crypto investors opt for protective insurance while reducing their exposure to speculative calls.
In last week’s insight, On-chain data aggregator, Glassnode revealed that Bitcoin’s market may have already priced in current uncertainties in the financial markets. This unpredictability includes the possible tightening of the Feds policy expected in march and fears over a potential conflict escalation in Ukraine. The report suggests that Bitcoin investors have de-risked in the face of these global headwinds and are now opting for protective insurance.
March Rates Hike Priced In Already
One notable indication from the metrics is that the intended march rate hike by the Feds has been priced in already. With the Bitcoin market maturing and liquidity deepening, the futures and options pricing present a proper avenue to glean important information.
Coincidentally, the futures term structure across several exchanges observed has flattened through march in anticipation of the hike. Given the previous years of weak monetary policy, this reflects investor anxiety about the broader economic impact of a stronger US currency.
Futures out to the end of 2022 are currently trading with a reasonably low annualised premium of 6%. This indicates that the market isn’t expecting a major bullish impulse soon. A Bloomberg report further substantiates this situation about the widening of credit spreads with growing US treasury yields. Unlike in 2021, when the bond spread remained very thin despite the rising treasury yields, the current situation shows market uncertainties impacting risk assets.
Consequently, there has been a noticeable de-leveraging across the futures markets. Unlike last year, liquidation has not been the primary driver for this activity. Due to liquidations and volatile pricing, investors opt to close out their futures positions rather than force a sale/bid. In response to the multitude of macro uncertainty, the market looks to be de-risking and reducing leverage.
Source: Glassnode
The chart shows that total futures open interest has dropped from 2.0% to 1.76% market capitalisation. This level of relative leverage was last reached after the 4 December 2021 de-leveraging event. However, it had shown to be a much more stable range for the market in 2021.
Also, with the Put/Call open interest ratio on the rise, there is a significant demand for put option protection. Investors preference for speculative call options has since shifted to protective put options since the October and November 2021 ATHs.This is indicative of a new regime of investor sentiment.
Source: Glassnode
Waning Sell-off In the Market
According to data provided by Santiment, the total supply of Bitcoin on exchanges is now down to just 10.87%. This is the lowest value recorded since December 2018. The continuous trend of coins leaving exchanges reduces the likelihood of large sell-offs, this suits investors.
Source: Santiment
This net outflow of Bitcoin indicates that investors have changed how they de-risk their assets. These traders would usually sell their coins in spot markets in previous Bitcoin cycles to reduce their exposure. However, with risk managers now having access to several derivative instruments, their derisking activities has changed. Overall, this is indicative of the maturing nature of the Bitcoin market.
Do you think the new de-risking strategy implemented is better for Bitcoin in the long run? Let us know your thoughts in the comments below.
Chris is a crypto enthusiast and a firm believer in the blockchain’s ability to create a new financial paradigm. Through writing, Chris hopes to expose the intricacies of this disruptive technology and how it is beneficial to Africans and developing countries. He aims to give readers a rational and unbiased outlook of the industry by equipping them with the necessary information to make enlightened investment decisions.
