How Does Backwardation Differ from Contango in Cryptocurrency Futures Markets?

Backwardation and contango are opposite market conditions. In backwardation, the futures price of a cryptocurrency is lower than its current spot price, suggesting expectations of a future price decrease or high immediate demand.

Conversely, contango occurs when the futures price is higher than the spot price. This indicates that the market expects the price to rise in the future or reflects the costs of holding the asset, such as storage and financing.

Bullish sentiment often leads to contango, while bearish sentiment can result in backwardation.