Futures Backwardation

Definition ∞ Futures backwardation occurs when the current price of a commodity or financial instrument in the futures market is higher than the price for delivery in future months. This market condition indicates that immediate supply is perceived as tighter than future supply, or that market participants anticipate a decline in prices over time. It contrasts with contango, where future prices exceed current spot prices. This structure can influence trading strategies and market sentiment.
Context ∞ In cryptocurrency markets, futures backwardation can signal bearish sentiment among traders, suggesting expectations of price depreciation. Analysts closely monitor this phenomenon in derivative markets for digital assets as an indicator of potential price reversals or sustained downward pressure. Understanding backwardation helps in assessing the prevailing market outlook and risk appetite.