Signs are emerging that the futures market may not be impressed by bitcoin's recovery from 15-months lows in December – at press time, the cryptocurrency's spot price is higher than the futures price.
As of writing, the global average or spot price calculated by CoinDesk's Bitcoin Price Index (BPI) is currently $3,650 – up 16.9 percent from the low of $3,122 reached on December.
Meanwhile, futures contracts are trading below the spot price.
As seen above (CME chart), January futures are reporting a $20 discount (futures price-spot price). Further, contracts expiring in February, March and June are trading at a discount of $30, $40 and $80, respectively.
A futures contract is an agreement between two parties to buy or sell a something at a future specified price and date, allowing for investors to hedge or speculate on the performance of the underlying asset. Hence, BTC futures trading at a discount to spot price (also known as market inversion) is a clear indication that the participants are still bearish.
Put simply, bitcoin’s price in one month, two months and six months from now is expected to be lower than its current price. So, it could be argued that the bear market is alive and kicking.
The outlook would turn bullish if the futures start trading at a premium to spot price. Moreover, that is a classic trait of the bull market.
That said, an unprecedented rise in premium serves as a warning sign of market nearing a long-term top. For instance, BTC futures were carrying a staggering $2,000 premium over spot price in December 2017.
Disclosure: The author holds no cryptocurrency assets at the time of writing.
CME director of equity markets Tim McCourt via CoinDesk archives; Charts by Trading View
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.