Please, not another price drop. Bitcoin is clinging to the $3,600 mark like a twig depending from a cliff edge. For now, the price seems to have entered another brief period of stability.

But, investors are always thinking about the future. And one indication of it, lies in the futures contracts themselves. Conventional wisdom tells us these markets are predicting further drops in the price of Bitcoin but—as always seems to be the case with Bitcoin—this type of thinking could yet again be wrong.

Right now, Bitcoin futures on the Chicago Board Options Exchange (the largest options exchange in the U.S.) are in “backwardation.” That’s a market condition in which a premium exists on near-term futures contracts. In other words, futures contracts expiring today have a current price of $3,635; by comparison, those set to settle next month are $45 lower, at $3,590. And those ending in April are even cheaper, at $3,545.

Since traders are willing to pay more for contracts that end sooner conventional wisdom suggest that this might represent a lack of confidence in the future price of Bitcoin.


But, it’s unlikely that it will affect the market. Bitcoin has been through this before and it didn’t affect prices then. Last year, shortly after Bitcoin futures launched, it was in backwardation for both January and February. According to a report by Element group, while the price of bitcoin rose in January, it fell in March, showing that there was no direct connection.

And that, some say, points to the real issue.

Bitcoin futures have a low volume. All of the trades ending today have a combined volume of 311 Bitcoin, worth around $1.2 million. Compared to crypto exchange Binance which has a monthly volume of $22 billion—that’s akin to a rounding error (even if, as some believe, crypto exchange volumes are largely fake.) And the futures contracts on the horizon are even smaller, with a total volume of 11 Bitcoin ($40,000) for April.

“Backwardation is a fancy economic term that doesn’t really have any predictive abilities,” says Mati Greenspan, senior market analyst at social trading platform eToro.  “Especially in this case when the volumes are so low and only the Wall Street segment of Bitcoin traders have access to them.”


One of the reason futures trading is so low is a lack of physically delivered Bitcoin futures. These are contracts where the final settlement is paid in Bitcoin, rather than an equivalent fiat value. Some financial experts point to Bakkt, which intends to provide this function. But its January launch was delayed due to regulatory issues, and has been further stalled by the U.S. Government shutdown. If Bakkt does cause a significant uptake of the Bitcoin futures market, we might be able to see what traders are really thinking.

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