How Can Traders Use Backwardation as a Signal for Potential Market Bottoms?

Traders often view backwardation as a potential indicator of a market bottom. This is because backwardation is a rare condition in cryptocurrency markets, typically occurring during periods of extreme fear, stress, or forced de-risking.

Historical data shows that backwardation has sometimes coincided with local or major market lows, such as during the FTX collapse in November 2022 and the SVB crisis in March 2023. The logic is that such extreme bearishness can signal capitulation, where sellers are exhausted, creating an opportunity for a price reversal.