Market timing can sometimes be tricky. One pair of people go all-in and make dangerous Bitcoin bets, while others-with a low-risk appetite-choose a strategy like DCA to play safely.
Experienced market participants usually rely on pricing strategies to determine trends and place orders. It gives them an additional advantage over others. This article describes two patterns that can help you enter the uncertain market phase.
Contango and Backwardation
Estos Price pattern It is usually formed when the spot price of Bitcoin and the futures price are different.
Contango is essentially a situation where Bitcoin futures prices are higher than spot prices. Backwardation, on the other hand, is the exact opposite of contango. Basically, Bitcoin futures prices are lower than spot prices.
How do you use these patterns?
Contango patterns often indicate a bull market. Contango is considered an optimistic sign as the market indicates that Bitcoin prices are expected to rise in the future, and participants are ready to pay the premium now. Coincidentally, backwardation is associated with a bear market.
Therefore, by tracking the price difference of spot futures, investors can time the entry point accordingly. Similarly, traders are given the opportunity to arbitrage and can benefit from price convergence.
Hyper Bitcoin – Still a distant dream?
Now, one of the common stories that Maxis advocates is that the above phenomenon is ultimately Hyper Bitcoin.. For them, as the supply of Bitcoin continues to decline, its demand will increase. Market participants who buy assets in bulk from FOMO will push up the price of BTC. In return, rising prices will attract leveraged buyers. These traders will increase the spread of contango through their trading.
US dollar arbitrators will also want to monetize risk-free returns. To keep the candles in the spread, they bought Bitcoin and sold futures. When you buy Bitcoin, the price goes up. The same will increase the spread of contango and attract more arbitrators. Investors are re-induced to buy Bitcoin to HODL and the cycle continues.
The same result may look like hyperbitcoinization, but keep in mind that the path is not that simple. High spot prices ultimately mean a market recession. Emotional reversals occur in the middle, and hyperbitconization is currently just a theoretical concept.