Basis
Overview
Basis is the percentage difference between derivatives contract prices and spot prices. This shows the premium or discount to which a contract trades at relative to current spot prices. IntoTheBlock calculates the contract's basis as perpetual swap’s price minus spot price. Therefore, when perpetual swaps’ prices are at a premium, basis is a positive number, and when they are at a discount they are negative.
💡 How can I use it?
Since perpetual swaps are intended to have little to no difference in price relative to spot prices, it is helpful to note when these diverge. Through the basis, traders can identify when perpetual swaps prices are particularly high or low in comparison to spot prices to gauge market positioning.
High positive levels of basis point to potentially overbought prices, while low negative basis signals that an asset may be oversold. For instance, in March 12 BitMex perpetual swaps traded a significant discount relative to spot price, pointing to the significant fear in the market. This of course marked a bottom for Bitcoin with this sudden, extreme crash reflecting in a drop in perpetual swaps’ basis.
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