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Analyst Looks for Bearish Signal After Backwardation Takes Place in BTC Futures

Analyst Looks for Bearish Signal After Backwardation Takes Place in BTC Futures
  • Crypto traders and analysts look for bearish signals.
  • An unusual movement called ‘backwardation’ takes place in BTC future trading.
  • There is currently no sign for extra leverage from sellers.

Crypto traders and analysts look for bearish signals. This takes place after the June BTC futures trade below the spot exchange pricing. Notably, an unusual movement called ‘backwardation’ takes place in Bitcoin (BTC) future trading. However, it focuses mainly on the June contract that expires on June 25.

Moreover, at a slight premium the fixed-month contracts trades usually. This shows that sellers request more money to hold settlements for longer. More so, the Futures need to trade at a 5% to 15% annualized premium on healthy markets, in addition to the lending rate of stablecoin. Notably, this scenario is said to be contango and not excluded from crypto markets.

Whenever this indicator turns negative, this shows an alarming red flag. This situation is called backwardation and indicates a bearish sentiment.

FTX June BTC Futures Versus Coinbase USD

As shown in the above chart, 0.1% to 0.5% premium took place for most of the past three weeks. This is equal to a 2% to 9% annualized rate. Therefore, oscillating between neutral and slightly bearish.

FTX June BTC futures vs Coinbase USD (Source: TradingView)

In addition, the indicator will turn negative, when short sellers utilize excessive leverage. For instance, there is only one week left for the June expiry, traders need to use longer-term contracts for this scenario confirmation. More so, the contract is moving towards its final trading date, the traders are pushed to roll over their position, this leads to exaggerated movements.

Furthermore, many traders choose backwardation as a bearish signal. However, there is currently no sign for extra leverage from sellers. This leads to the absence of buyers’ interest for the June contracts, however not reflecting the overall market sentiment. In case, traders effectively are bearish, both the perpetual contracts and longer-term futures will display the trend.

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Crypto trading has enticed Ananthi Reeta to write for CoinQuora. She consistently contributes news and feature articles. She has covered several different blockchain and crypto niches, especially altcoins.