Market Wrap: Bitcoin Gains as Futures Dance the Contango

Bitcoin futures premiums have jumped into "contango" levels, a bullish signal.

Apr 23, 2020 at 9:38 p.m. UTC
Updated Sep 14, 2021 at 8:32 a.m. UTC

Bitcoin futures are showing signs the market is more optimistic on the cryptocurrency. On Thursday, prices for further-dated futures contracts on the Chicago Mercantile Exchange (CME) were higher than near-dated ones. The term structure, known as contango, is usually taken as a bullish signal. 

The world’s oldest cryptocurrency popped 10 percent Thursday ahead of April CME futures expiration, from $7,018 to as high as $7,765 on retail-friendly spot exchanges like Coinbase. The CME April contract settled at $7,115 on Thursday while those for May delivery came in $40 higher, indicating a positive outlook.

“Leveraged demand is back with a vengeance today, with the futures term structure shifting back into contango, after a trigger of stops on the break of $7,500 sent bitcoin all the way to the $7,800 level,” said Denis Vinokourov, head of research for cryptocurrency brokerage and exchange Bequant. 

Earlier in the week, further-dated contracts were trading at a discount to the spot price, a situation known as “backwardation.” Contango returned Wednesday and for a short period of time Thursday, Kraken futures dated a month out were trading at a 7.3 percent premium on an annualized basis to spot on the Kraken exchange, according to data from Skew.

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Kraken bitcoin futures since April 17.

Thursday's rally has some observers wondering if the crypto derivatives market, particularly BitMEX, continues to amplify drastic bitcoin price movements. During sudden price changes, automatic liquidations are triggered  on such exchanges as BitMEX, for those traders unlucky enough to bet the wrong way. Alex Mashinsky, CEO of crypto lender Celsius Network, wonders if bitcoin can maintain its gains. “The big question is will this hold or are we just seeing flash liquidations of shorts on BitMEX,” he noted to CoinDesk. 

Long-range bitcoin outlook

Bitcoin’s price is only now approaching where it was just prior to its March 13 crash, when it changed hands as low as $3,867. 

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Bitcoin trading on Coinbase since the beginning of 2020

“I’m happy for the pop. However, being bitcoin I’m not impressed - we are back at the April 9 level, nothing to see here,” said Henrik Kugelberg, a Sweden-based over-the-counter (OTC) trader.

Other crypto markets

As bitcoin goes up, so do other crypto assets. Ether (ETH) climbed 3.7 percent in the past 24 hours of trading as of 21:10 UTC (5:10 p.m. EDT).

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Ether trading on Coinbase since April 21

Other digital assets were also in the green for the day. The biggest winners Thursday included stellar (XLM), up an eye-popping 18 percent, cardano (ADA) higher by 16 percent and ethereum classic (ETC) gaining 6 percent. All price changes are as of 21:10 UTC (5:10 p.m. EDT).

Despite recent research towards the contrary, increases in stablecoin issuance are one signal to look towards for today’s bullish activity, says Blockfills’ Van Huis. “We’ve seen a massive increase in stablecoin activity, perhaps indicating fresh money coming into the market which eventually gets distributed into cryptos.”

Other markets

Oil is roaring back in a big way, jumping 19 percent in trading per barrel as of 21:10 UTC (5:10 p.m. EDT). This is after a historic week saw ‘black gold’ futures prices hit historic negative values Monday

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Contracts-for-difference on oil since April 21

As for real gold, the yellow metal gained 1 percent - trending downward a bit in Thursday afternoon trading but the safe haven remains in the $1,700 area it crossed Wednesday. 

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Contracts-for-difference on gold since April 21

In the United States, the S&P 500 index slipped less than a percent with U.S. Treasury yields relatively flat as a reported 4.4 million fresh jobless claims were reported this week. 

The FTSE Eurotop 100 index of largest companies in Europe was up less than a percent , even as economic data made available Thursday in the U.K. showed dismal numbers amid the coronavirus pandemic

As for the Asian markets, Tokyo’s Nikkei 225 index closed up 1.5 percent as sectors such as real estate and transportation rebounded from Wednesday losses. The Bank of Japan is expected to have a policy meeting on Monday with stimulus reportedly on the agenda, particularly bond repurchases

“Everything is up today - gold, equities, even bonds. It's a 'risk-on' day,” said Rupert Douglas, head of institutional sales at digital asset management firm Koine. “The question is whether when equities head south again, will bitcoin be correlated, like last time, or uncorrelated?”

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