The spread between next-month and front-month bitcoin futures contracts can offer insights into the level of speculation in the market, one analyst.
Speculative frenzy, or periods of intense speculation characterized by irrational exuberance and greed, is an infamous sign of an impending market top.. But there is another surprisingly more straightforward way: tracking the spread or difference between prices for next-month and front-month futures contracts trading on major exchanges like the Chicago Mercantile Exchange and Deribit.
The futures term structure is usually upward sloping, as contracts with a more extended expiry time trade at a premium to short-duration ones. That said, when the spread becomes too large, it’s a good indicator of speculative sentiment, according to Griffin Ardern, head of options trading and research at crypto financial platform BloFin.