How does the basis affect the valuation of digital currencies?

1 answers

• A H ANAMMay 29, 2022 · 3 years ago
  The basis is a term commonly used in the futures market to describe the price difference between the spot price and the futures price of a digital currency. It represents the cost of carrying the digital currency from the spot market to the futures market. The basis can affect the valuation of digital currencies in several ways. Firstly, a positive basis indicates that the futures price is higher than the spot price, which can attract arbitrageurs who can profit from the price difference. This increased demand can drive up the overall valuation of the digital currency. Secondly, the basis can also reflect market sentiment. A positive basis suggests bullish sentiment, while a negative basis indicates bearish sentiment. This can influence investor behavior and impact the valuation of the digital currency. Lastly, the basis can be influenced by factors such as supply and demand dynamics, interest rates, and market expectations. By understanding and analyzing the basis, investors can gain insights into the valuation of digital currencies and make informed investment decisions.
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