BullionStar News
Writers Torgny Persson, Koos Jansen
& Hong Kang See

Bitcoin backwardation, gold contango

Monday the 22nd of January 2018
People often refer to bitcoin as digital gold because of the similarities between the two assets. One big difference between gold and bitcoin is currently playing out in their respective futures markets. Since bitcoin futures were introduced last December by the CBOE, futures prices have often been inverted, or in backwardation. This sort of phenomenon rarely happens in gold markets, which trade normally, or in contango. Let's explore why inversion seems to be relatively common with bitcoin and whether this will continue to be the case in the future.

Backwardation or inversion is when future prices for a commodity lie below its current price. For instance, at lunch-time on January 16 (EST), when the current price for bitcoin was $12,170 on the Gemini bitcoin exchange, the March 2018 contract on the CBOE futures exchange was being bid at $12,000, a discount-to-spot of $170 or 1.4%.

At that very same point in time on January 16, gold's spot price was at $1334 whereas the March futures contract was trading at $1336.90, a premium-to-spot of $2.90 or 0.2%. This is contango, or a normal-yielding market. I’ve illustrated both markets below.

A comparison of the spot prices of bitcoin and gold to their futures prices on Jan 16, 2018

In theory, the future price of a durable and easily storable commodity—say like gold, silver, and bitcoin—should always lie above the current price, or in contango. This is because storables incur holding costs, and a higher futures price is the market's way of paying for those costs.
Contango as the fee for hoarding gold

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