As bitcoin goes bust, one classic market signal is pointing to more pain

Bitcoin futures have entered into a contango market, suggesting further agony for the cryptocurrency.

A contango market means an asset's futures contracts are trading at a premium to its spot price; a market watcher could simply look at the daily settlement price data of the underlying futures contract on a given exchange, then examine the price of the series of months further out. If those prices are more expensive, we have a contango.

For instance, bitcoin on the Coinbase exchange was trading near $7,898 on Wednesday, while Cboe bitcoin futures contracts expiring in June were trading at $7,980 per coin.

It is not uncommon see contango markets across other asset classes like grains, metals and energy, and such price action may benefit the hedger who is trying to lock in prices for forward production; in this case, it would be bitcoin miners.

This comes as bitcoin itself has dropped significantly from its highs late last year, wallowing below $8,000 per coin following a meteoric rise in 2017; bitcoin continues declining from its March highs of $11,700, most recently testing support at $7,700. On Thursday, it was ay $7,490, according to CoinDesk.

The most recent blow came from an announcement that Twitter would ban cryptocurrency ads. We have seen similar bans by Google and Facebook, as regulatory scrutiny has been another negative catalyst for bitcoin this year.

Looking ahead, we should continue seeing larger bitcoin miners attempt to take advantage of this contango market. Meanwhile, speculators could see a re-test of the all-time futures contract low of $5,970.

Ultimately, I would be cautious until we can see some signs of strength injected back into the market.

Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more