Why Is The Bitcoin Futures Curve So Steep? Analysis and Explanations

You can profit from Bitcoin futures by following the “cash and hold arbitrage” method that delivers at least a 25% yield annually.

But the question is, how long should one wait until the market stabilizes? And how should one approach the possible ups and downs of the futures markets?

The apparent unpredictability coupled with the mechanics of Bitcoin scare away many new and potential buyers.

There’s, nevertheless, an investing plan that involves purchasing Bitcoin and obtaining double-digit profits without even being dependent on the future curves of Bitcoin.

So let’s get straight into understanding why the Bitcoin futures curve is so steep and how to trade according to it.

What Is Futures Contract Chart, and Why Does It Concern Your Portfolio?

Bitcoin Futures Curve

Bitcoin futures contracts are available for purchase and store to refresh your memory. Depending on the length of the agreement, these contracts follow different arcs.

●      The Contango Slope

A “contango” slope is when futures contracts are sold at a lower rate to their spot value than they would be sold for at a future maturity. Because of this, the futures curve rises, and futures prices tend to move in the direction of the spot price over time.

A long-term strategy will result in losses if the underlying asset’s price stays constant between purchase and expiry.

●      The Backward Curve

Backwardation curves are the reverse of contangos. Most Bitcoin futures contracts are close to their spot rate and are more expensive than a contract with a more prolonged expiration.

The buyer will profit if the value of the virtual coin does not change between purchasing the contract and its expiration date.

An example of this is a “rolling” motion seen with CME Bitcoin futures. You can employ the “cash and carry” arbitrage approach when such a situation arises.

If you’re in the “contango,” you need to take a “low” stance on the “futures” contract (which means you’re “brief” a bearish “roll”). It is essential to retain a long position on the “spots” (to cover your exposure to the market).

As institutional investors dealing with backwardation, you’ll want to imply a very ongoing strategy for your futures contract and a short one for your current (to maximize market exposure).

What Is “Contango Bleeding” in Futures markets?

Futures contracts with a more extended expiration date tend to be more expensive than those with a shorter expiration date.

“Contango” is a term used to describe the phenomenon of long-term contracts trading above short-term contracts in commodity markets.

Investing in interest-bearing assets like government bonds also benefits from the value of fiat currencies. When Bitcoin prices are expected to rise, there is a tendency for contango bleeding in the Bitcoin market.

If the Finance Commission authorizes a Bitcoin-futures ETF, such a contango might be a burden.

Several futures contract ideas are awaiting governmental clearance in the next several months.

“Contango bleed” is a significant risk for institutional investors who pour money into new tokens but is not a risk for those who already feature Bitcoins in their trading portfolio.

Why Is the Bitcoin Futures Curve So Steep?

Bitcoin Futures Curve

Many investors rely on the incline of the Bitcoin futures curve and the appeal of simple cash and carry trading arbitrage to maximize their profits. Consequently, the possibility of exchanging spots for Bitcoin futures through EFPs remains a question.

Banks have taken no part in easing the crypto, thus making the supply of US dollars tighter. This is primarily due to the lack of a well-thought-out financial strategy. Many organizations are good at managing Bitcoin but not actual cash.

Consequently, it is not unusual to see the borrowing rate of the US dollars differing by a margin of at least 10% by using. It is worth noting that Bitcoin’s popularity as a collar has increased.

How To Approach Bitcoin Futures Curve

The CMC (Chicago Mercantile Commission) introduced its initial futures contracts in late 2018 (June CME Bitcoin Contract).

In the Bitcoin system, the curves have traditionally been in a state of “contango.” This contango is also affecting the market’s current situation.

The “contango” in issue (hence the steeper curve slope) is highly variable, enabling a good arbitrage approach.

However, as demonstrated in the figure below in the next section, premiums acquired through a “low” stance on futures contracts may provide annualized profits varying from 25% to 55% based on the transaction and expiration.

Does Bitcoin Feature a Fundamental Price?

What’s going on with the Bitcoin price? Even if we could, we don’t claim to know the answer.

We will not speculate on the future of Bitcoin pricing or make any predictions. This article focuses on the long-term trend in Bitcoin price rather than speculating on short-term fluctuations.

Utopians and doomsayers both have equal amounts of speculative desire.

As more Bitcoin is produced, the supply and distribution will grow. When deciding whether or not to engage in mining Bitcoin, consider both the costs and the rewards.

Nevertheless, in principle, the cost of Bitcoin mining should have no impact on its value—basically none at all—any more than the cost of printing very few fiat currencies.

It is worth noting that the profits produced by cash and carry techniques on fiat currencies are significantly lower than those offered by Bitcoin.

Apart from yields earned on certain nascent currencies, pocketing more than 5% yearly returns is unusual.

Several hedge funds and trade departments have taken note of this opportunity to try and earn some profit from it.

According to the Binance website, open interest in Bitcoin futures is skyrocketing, hitting an all-time high of $22 billion earlier the other week.

This enthusiasm appears to be driven by many institutional investors following the “cash-and-carry” exchange.

How Can One Determine The Price Rise in Bitcoin Futures?

Bitcoin Futures Curve

The emergence of Bitcoin serves as a significant reason for the price rise. However, the curve stays relatively steep, including during Bitcoin’s significant corrective periods, which contradicts this logic.

As a result, we must investigate the causes that lead to a more plausible explanation.

In principle, a futures curves is a combination of three variables:

  1. The current market value
  2. Bond yields fewer dividends or discounts
  3. Local consumer price inflation

Because most Bitcoin commodities are dealt in virtual cash, the carrying costs are mostly omitted. Because there is no payout or dividend, the annual rate has to be considered.

Bitcoin futures prices are thus the money price plus the cost of leasing Bitcoin over a particular term period.

The annual debt burden sits around 2.2 – 3.5 percent. Because the “floating” rate is significantly greater than the buying rate, buyers must be “compensated” for additional risks.

Why aren’t these high profits distributed unequally? What are the dangers?

Let us find out.

Risks of Borrowing Bitcoin Futures Contracts

While working with overseas exchanges like Binance, the first danger that springs to mind are the risk of late payments and money outflow. These dangers, however, do not apply to a controlled exchange such as the CME. Including Chicago, where the benefits are substantial.

Therefore, it is necessary to examine some of the intricacies of the CME agreement, for instance.

Bitcoin Futures Curve

As previously stated, investors deal in cash and predicate on the BBP (Bitcoin Benchmark Price) index, which is collated based on the premise of an aggregate of the values gathered on several platforms in the hour before the closing (4 pm).

Because of Bitcoin’s tremendous volatility, the tracking error between current prices and the benchmark index is significant. This tracking mistake amounts to 10% on an annual basis.

In other terms, Bitcoin’s extreme volatility poses a danger to investors that utilize “cash and carry” exploitation. This danger is imminent since their hedging strategy (lengthy Bitcoin cash holding) might see its value deviate dramatically from the benchmark.

This phenomenon gives us a more straightforward explanation for the substantial risk premiums. Accessing spot holdings in Bitcoin remains a complex process for many investment firms.

Because there is no Bitcoin ETF, many traders have turned to the Gray-Scale Bitcoin Fund, which has a market valuation of about $42 billion. The problem is that the tracking inaccuracy between the trust and Bitcoins is 52% annually.

As a result, it is insufficient as a hedging strategy.

Are There Any Possible Factors That Can Slow These Returns?

According to economist JP Morgan, ETFs for Bitcoin are expected to begin trading in the United States next week. These tools are less expensive than trusts and have a more minor path loss than the lengthy “positions” side hazards can be better controlled.

Because prime brokers could acquire collateral more quickly, the initial margin needed as a competitor would be reduced (it currently stands at 40 percent ). The price of Bitcoin futures contracts might be normalized due to these ETFs.

Remember that seven ETFs are presently seeking clearance from the USA Financial commission (see table below).

Despite the arrival of the new chairman of the SEC, who clearly has a positive stance on cryptocurrencies, it is impossible to determine when these ETFs will be introduced.

The tremendous gains provided by cash and Bitcoin may persist for some time.

No one can predict the future by looking at the past. Investments in Bitcoin and other cryptocurrencies include significant risks.

It should be noted that this post is determined by market insights and does not represent investment advice.


Is The Bitcoin Market Too Volatile?

Bitcoin is definitely volatile, otherwise would not be up 150 percent year to date. Nevertheless, Bitcoin’s fundamental unpredictability is half of that of 2018.

Inexact amount, Bitcoin changed less than 3% from close to close in 205 days this year. This year, it has been less volatile than a wide variety of coins and other currencies.

Although the breakthrough in spot, implied volatility is currently around record lows. Suppose one were to consider the inexpensiveness of options. In that case, the market could experience a probable paradigm shift if Bitcoin climbs over $25,000.

What is The Current CME Data?

According to CME statistics, Bitcoin’s June expiration contract is now trading at $57000, a $770 premium over the market price. In contrast, the December expiry contract is selling at $59,500, a $900 excess.

Suppose a newly licensed Bitcoin futures ETF buys the December contract at its current price.

The profit on the December contract would most certainly vanish before the end of the month. When the bond fund portfolio is reset, it may lose the December contract for a loss of $800 or 0.86 percent (annualized 9.63 percent), and then purchase the next month’s warranties at a profit.

The rollover risk is included in the description of each contract. However, it is worth noting that more extended periods of contango may result in significant contract deficits.


The conclusion is paradoxical because the crypto business and its DeFi offshoot look to have now established an ideal vacuum on its own. The Crypto business is growing solely because of the SEC’s rejection to kickstart a Bitcoin ETF.

Ironically, the immediate result would be a significant increase in demand. In a situation like this, the slope and produce would immediately normalize. The long-term repercussions on the cryptocurrency market would start to show.

This normalization could be catastrophic and stunt the DeFi interior’s tremendous growth over the past year.

If the recent trend were to overturn, the SEC would permit one or even more Bitcoin ETFs.

Leave a Reply