How Does the Futures Curve for Cryptocurrencies Differ from That of Traditional Commodities?
The futures curve for cryptocurrencies differs from traditional commodities in a few key ways. Cryptocurrencies have negligible storage costs compared to physical commodities like oil or grain, so the cost of carry is less of a factor in their futures pricing.
Instead, sentiment and speculative expectations play a much larger role in shaping the crypto futures curve. Additionally, the concept of "convenience yield," which is the benefit of holding a physical commodity, does not directly apply to cryptocurrencies.
Finally, crypto futures markets are often dominated by retail speculation to a greater degree than traditional commodity markets, which can lead to more extreme contango and backwardation.
Glossar
Speculative Expectations
Premise ⎊ Speculative expectations within cryptocurrency, options trading, and financial derivatives represent anticipations of future price movements, fundamentally driving market participation and risk assessment.
Negligible Storage Costs
Scalability ⎊ Negligible storage costs within cryptocurrency, options trading, and financial derivatives are fundamentally linked to the scalability of blockchain and distributed ledger technologies.
Extreme Contango
Contango ⎊ The phenomenon of extreme contango in cryptocurrency derivatives, particularly options, signifies a market condition where futures contracts or perpetual swaps are priced significantly higher than the spot price.
Physical Commodities
Asset ⎊ Physical commodities are tangible assets, including agricultural products, energy resources, and precious metals, which serve as the underlying for many derivatives contracts.
Traditional Commodity Markets
Basis ⎊ Traditional commodity markets represent established venues for trading raw materials and primary agricultural products, historically functioning as foundational price discovery mechanisms before the advent of formalized exchanges.
Traditional Commodities
Asset ⎊ Traditional commodities are tangible, physical goods, such as crude oil, gold, agricultural products, and base metals, that are interchangeable with other goods of the same type and are fundamental to global commerce.