What is backwardation?
Simply put, backwardation is a phenomenon which occurs when the spot price of a financial asset is higher than that of what futures contracts are going for.
This behavior can spell trouble for that particular asset, and can signal that a bear market is on the horizon.
According to reports, JPMorgan has seen a backwardation in Bitcoin prices.
Should you be alarmed at this analysis?
Maybe, and maybe not. On one hand backwardation is a powerful signal for market reversals to the downside, but on the other hand Bitcoin is a relatively new asset and no one can be certain of where we are headed.
Countries like El Salvador have made Bitcoin into legal tender, and it seems like everyday now we have a new country or a massive corporation going in on Bitcoin.
If we continue to see these developments over the next several months then the price action is sure to be on the up and up as well.
Either way this can be seen as good news. If JPMorgan is correct and we head into a bear market, then there will be many opportunities to buy and hold long term.
If they are wrong then Bitcoin continues to go up, and everyone makes even more money.
Here’s what people are saying:
If JP are saying we're on our way to a bear market then this confirms the exact opposite…. 😀
"We believe that the return to backwardation in recent weeks has been a negative signal pointing to a bear market," JPMorgan strategists
— The Bigger Picture – Stack LOVE! not SATS (@VBanks63300102) June 11, 2021
— BitcoinAgile (@bitcoinagile) June 10, 2021
Crypto Potato writes:
On a shorter-term scale, BTC is up by $6,000 in two days following positive news coming from El Salvador. However, analysts from the giant multinational investment bank, JPMorgan Chase & Co, led by Nikolaos Panigirtzoglou, still see significant concerns on the horizon.
They touched upon the so-called backwardation in the futures market. Such a development occurs when the price of the underlying asset is higher on spot markets rather than future markets.
“We believe that the return of backwardation in recent weeks has been a negative signal pointing to a bear market.” – the analysts noted.
Furthermore, they breached historical performance to their point. The Bitcoin futures were in backwardation for most of 2018 – the year-long bear marker which saw BTC tumble by more than 70% since its peak.
While they have concerns about bitcoin’s price performance, the strategists recently listed three reasons why they believe ETH will outperform it in the following months.
Business Insider offered more of this perspective:
Bitcoin may have to slide below $30,000 before institutional buyers are lured back into the market and start pushing the price up again, according to a crypto expert at JPMorgan.
One of the key reasons for the recent tumble in bitcoin’s price has been a sharp decline in interest from big players, Nikolaos Panigirtzoglou, a managing director and global market strategist at JPMorgan, told Insider.
Panigirtzoglou said major buyers were drawn towards bitcoin as the price started shooting up in 2021. But he said the soaring cost then began to put them off.
“If you ask, right now, institutional investors whether $50,000 or $60,000 is looking like an attractive level for bitcoin, they will most likely say no,” Panigirtzoglou said.
“I fear we might need to see bitcoin moving below $30,000 for that institutional interest to pick up considerably.”
Read more:Meet the 11 crypto masterminds at Wall Street firms like JPMorgan, Bank of America, and Morgan Stanley who are helping clients understand the mania
Panigirtzoglou’s view differs from some strategists, who think a drop below $30,000 would likely spell further trouble for bitcoin.
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