What Is Basis?
The basis is the difference between a futures contract price and the spot price of the underlying asset. When futures trade above spot (positive basis), the market is in contango. When futures trade below spot (negative basis), it's in backwardation. The basis reflects the cost of carry (interest rates, storage costs) plus market sentiment.
How Basis Works
In crypto perpetual futures, the basis is maintained through the funding rate mechanism. For quarterly futures, the basis is priced into the contract and converges to zero at expiration. The annualized basis (premium expressed as an annual percentage) is the key metric: 10% annualized basis is considered neutral; above 20% signals bullish excess; below 0% signals bearish excess.
Why It Matters for Traders
The basis is one of the most informative derivatives metrics. Extreme positive basis (high premium) signals euphoria and over-leveraged long positioning — a warning sign. Negative basis signals fear and over-leveraged short positioning — often a contrarian buy signal. Cash-and-carry arbitrage (capturing the basis as risk-free yield) is the foundation of institutional crypto strategies.
