What is Contango and Backwardation – What it Means in Crypto

Published by Thrillmex on

What is Contango and Backwardation and What it Means in Crypto

What is Contango?

Contango is when the bitcoin futures contracts are being traded at a higher price than the current underlying price.

For example: 

bitcoin in contango

Both March and June futures contracts (Mar27, Jun26) are trading at $7,674 and $7,760 while the underlying swap contract is trading at $7,546. This is what’s called contango.

What is Backwardation?

Backwardation is when the bitcoin futures contracts are being traded at a lower price than the current underlying price.

For example:

backwardation for bitcoin

In this example both March and June futures contracts (Mar27, Jun26) are trading at $7,390 and $7,290 while the underlying swap contract is trading at $7,566. This is what’s called backwardation.

How does this relate to the crypto market?

Contango is seen as a bullish sign because traders expect the prices to increase over time.

Backwardation is seen as a bearish sign because traders expect the prices to decrease over time.

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