Bitcoin: The case for and against a ‘wild bullish impulse’ anytime soon

There’s a growing sense of uncertainty within crypto investors concerning the Federal Reserve interest rate hikes in March. The latest Glassnode’s The Week On-Chain newsletter published on 14 February gave insights about this upcoming storm.

Brace yourself

The expected rate hikes flattened the futures term structure through March. This signals a clear investor uncertainty regarding the wider economic impact of a tighter U.S dollar, given the preceding decades of loose monetary policy.

Source: Glassnode

The aforementioned graph shows an objective flat area on the futures term structure curve, echoing the sentiment that investors are not expecting a significant bullish breakout through the end of 2022.

Futures out to the end of 2022, for instance, have been trading with a very modest 6% annualized premium. This suggests the market is quite far from “anticipating a wild bullish impulse any time soon.”

Annualized premium is the value above a dollar that a person will pay for the risk of a futures contract. A higher premium indicated a higher risk appetite.

As per the report,

“It appears that investors are deleveraging and utilizing derivatives markets to hedge out risk, and buying downside protection with a keen eye on the Fed rate hikes expected in March.”

There was a “notable de-leveraging across futures markets” this week. Such de-risking resulted in a decline in total futures open interest from 2% to 1.76% of the total crypto market cap. Ergo, pointed at “preference for protection, conservative leverage, and a cautious approach to storm clouds on the horizon.”

Finally, some sunshine

Bitcoin proponents held their positions despite the circumstances. Be it Fed rate hike, Increased selling pressure etc. Bitcoin outflows from exchanges highlight this narrative.

Source: Glassnode

According to the aforementioned graph, net outflows reached a rate of 42,900 BTC per month. I.e. Bitcoin outflows from exchanges were vastly outweighing inflows. In fact,

“This trend of net outflows has now been sustained for around 3-weeks, supporting the current price bounce from the recent $33.5k lows.”

Long-Term Holder (LTH) supply continued to hold a sideways trend, with a total supply held of around 13.341M BTC. ‘Since the October ATH, LTHs have spent only 175k BTC on the net.’ Despite the prevailing macro headwinds, strong hands demonstrated a remarkably resilient cohort of HODLers.

Who prevails in the end?

Fundstrat managing partner Tom Lee, in a CNBC interview on 14 February, discussed the rates hike.

According to the exec, due to an interest rate reversal, “for the next 10 years, you’re guaranteed to lose money owning bonds… that’s almost $60 trillion of the $142 trillion.”

The deficit would flow into the crypto universe. Investors could earn yields that match or maybe even outperform the yields they earn from bonds. He opined,

“I think what is more likely is a lot of speculative capital from equities… it’s going to be tracing its roots to a rotation out of bonds and it’s going to eventually flow into crypto.”