Bitcoin has slipped into backwardation, a pattern that occurs when futures trade below the spot price and is typically associated with stress, “extreme fear” or heavy hedging activity. The shift comes as bitcoin has fallen as much as 30% from its all-time high.
According to an X post from Thomas Young, Managing Partner at RUMJog Enterprises, this setup is rare in bitcoin and often signals a moment when it’s time to take the other side of the trade.
As Young notes, “retracements don’t happen often, and when they do, they usually mark stress, forced risk aversion, or a short-term capitulation point.”
Young adds that markets typically follow one of two paths from this point: “Reversal as the panic dissipates,” or “continuation to a final flush, which also tends to mark the bottom of the move.”
Backwardation has a history of adapting to local or larger market bottoms. It marked the exact cycle low in November 2022 around $15,000 during the FTX collapse. Backwardation reappeared in March 2023 when bitcoin briefly fell below $20,000 below the SVB and USDC depeg before rallying sharply.
Another example occurred in August 2023 when the Grayscale ETF news sold, driving prices towards $25,000, marking a short-term bottom and a quick reversal.
The three-month futures annualized rolling basis, which has now fallen to around 4%, the lowest level since November 2022. The basis measures the annualized return available from a basis trade, where traders buy spot bitcoin and sell a futures contract at the same time that expires in three months. Futures are usually traded at a premium, while the spread provides a relatively low return on risk.
The sharp compression of this premium shows that demand for leveraged long exposure has fallen massively. In bullish phases, traders are willing to pay for forward exposure, which drives the basis higher, it was as high as 27% back in March 2024 during bitcoin’s all-time high of $73,000.
The current decline points to a more cautious environment, softer risk appetite and a market still digesting the recent downturn. In moments of extreme enthusiasm, the curve can swing into a steep contango, but under normal conditions bitcoin trades in a relatively mild contango structure.
