The bullish sentiment observed following Donald Trump’s victory in the November 5 Presidential elections has largely dissipated, as indicated by the Bitcoin (BTC) futures trading on the CME. The evaluation of market sentiment can be illuminated through the spread between the “continuous” next month and the front-month standard BTC futures.
The continuous contract serves as a calculated representation of a series of nearing expiration futures contracts, thus allowing analysts to engage with a continuous historical data series. Recently, the spread has narrowed to $495—marking its lowest point since November 5—after peaking at $1,705 on December 17, according to data from TradingView. This contraction reflects a complete reversal of the initial market optimism, signaling a weakening bullish sentiment.
Thomas Erdösi, head of product at CF Benchmarks, remarked to CoinDesk, “The narrowing spread between front-month and next-month CME Bitcoin futures could suggest traders are tempering their price expectations.” This indicator suggests that market participants are reassessing potential price movements, indicative of caution amidst shifting sentiments.
The unwinding of what has been termed the “Trump bump” implies that the market is moving beyond the notion that a pro-crypto president is an unequivocal benefit for the industry, with broader macroeconomic situations once again taking precedence.
Erdösi noted, “What we can see is that the front contract basis has repriced lower substantially since the beginning of March, signaling moderating near-term expectations that the primary catalyst for the recent rally—the election of President Trump—has been fully priced in.” This viewpoint is increasingly validated by the performance metrics of BTC and major stock indices. Since early February, BTC has dropped by 20%, while the Nasdaq, a barometer for technology stocks, has seen an 8% decline, triggered by a confluence of factors including geopolitical uncertainties, tariff implications, and concerns over inflation and economic growth.
Adding to the complexity, the market has had to reconcile itself to disappointment regarding the lack of new purchases linked to Trump’s recently announced strategic digital asset reserve plan. Following his executive order last week, which facilitated the creation of a strategic reserve encompassing BTC acquired through enforcement actions, speculation was high that new Bitcoin would be purchased. Ian Balina, founder and CEO of Token Metrics, commented, “The announcement about the Strategic Bitcoin Reserve is not what the market was hoping for. Many expected the Reserve to buy new Bitcoin, but instead, they would not sell any of their existing or confiscated Bitcoin. While this is a positive move, it caused a sharp decline in Bitcoin’s price.”
Understanding Futures and Market Dynamics
It is important to note that while the spread between next month and front-month CME futures contracts has constricted, the entire curve remains in contango. In this condition, far-dated futures contracts (those with longer maturities) trade at a premium compared to their near-dated counterparts—a typical occurrence across various markets, influenced by costs associated with storage, financing, and insurance, in addition to expectations of future price increases.
Erdösi concludes, “The fact that perpetual funding rates remain positive and the futures basis is still in contango suggests the recent move is driven by unlevered spot longs being squeezed, rather than broader market contagion.” This insight serves as a reminder of the intricate dynamics at play within the cryptocurrency market, requiring traders and investors to navigate with caution and awareness of underlying economic signals.
