Backwardation
A market condition in which futures prices sit below the current spot price, so the curve slopes downward over time.
Backwardation is the mirror image of contango and, in digital assets, tends to appear when demand for leveraged long exposure falls away or when participants are paying to hedge existing positions. In perpetual futures the equivalent signal is a negative funding rate, where short positions pay long positions. Because the contract settles against a spot index at expiry, the gap must close by then, so a curve in backwardation converges upward toward spot rather than staying below it. Commodity markets can enter backwardation for a different reason, namely a shortage of the physical good, which has no digital-asset counterpart.
En pratique
Periods of forced position closing often coincide with futures trading below spot, as leveraged long demand withdraws from the derivatives market.
Le malentendu courant
Backwardation does not mean the market expects a decline; it reflects current demand for leverage and hedging, not a consensus forecast.