Bitcoin to Soar as Trump’s Pro-Crypto Policy Hopes RiseBitcoin prices are on fire. It has surged 129% YoY with anticipation surrounding re-election of Donald Trump as the POTUS for the 2nd time. Trump is regarded as the “most pro crypto” President. Trump is poised to usher in a crypto friendly policy framework aimed at accelerating institutional adoption and positioning Bitcoin (“BTC”) as a cornerstone of the American financial bedrock.
Rising regulatory clarity and favourable policies on the horizon, the bullish sentiment is palpable. Rollercoaster rides are mild relative to BTC returns. BTC volatility is sharp. There are multiple ways of generating returns in BTC. This paper looks at combining Spot BTC ETFs and CME Micro Bitcoin Futures to harvest futures premium baked into the term structure.
A long position in the underlying asset combined with a short position in the futures is also known as cash-and-carry trades. More on that later.
Starting first with price drivers pushing BTC into record territory.
Crypto Renaissance following President Trump’s Re-election
Trump wasted no time outlining his ambitions to position the US as a global leader in digital asset adoption. Among his key initiatives is the creation of a National Bitcoin Reserve which aims to integrate BTC alongside gold as a strategic asset. This is a bold move making BTC bullish.
Further, Trump’s nominations for key regulatory roles signal a transformative shift. Paul Atkins, co-chair of the crypto lobbying group Token Alliance, is set to lead the SEC. Fintech venture capitalist David Sacks has been tapped as the White House’s AI & Crypto Czar. Together, these two are expected to establish regulatory clarity while reducing policy uncertainty for investors.
Speculation runs rife about tax incentives aimed at encouraging blockchain innovation, driving significant capital inflows into the sector.
At the Nashville Bitcoin Conference in July 2024, Trump unveiled plans for a Bitcoin Advisory Council, which would draft transparent regulations within his first 100 days in office.
The US government already holds 120,000 BTCs seized from illicit operations. Under Trump, the US Government is expected to consider converting excess reserves at the Federal Reserve into BTC over the next five years. Trump has argued that BTC is unlike fiat currencies which are designed to lose value (2% p.a.) through inflation, while the former offers long-term growth potential.
Adding to his pro-BTC stance, Trump reaffirmed his commitment to safeguarding financial sovereignty by defending the right to self-custody. He also doubled down on his opposition to Central Bank Digital Currencies (CBDCs), emphasizing his belief in decentralization and financial privacy.
This narrative has resonated strongly with institutional investors where it reinforces BTC’s appeal as a hedge against inflation; and the crypto community, where the intrinsic quality of BTC being independent could still be retained.
BTC's Rally and Institutional Momentum
BTC reached an all-time high of USD 108,364 on 17th December 2024 but has since softened a little and now trades at USD 96,941 as of close of markets on 7th January 2025 (10.5% below its peak).
Despite the pullback, BTC remains a cornerstone of institutional interest. BlackRock’s iShares Bitcoin Trust ( NASDAQ:IBIT ), launched in January 2024, has cemented itself as the fastest-growing exchange-traded fund (ETF) in history. Amassing more than USD 50 billion in assets within 11 months. NASDAQ:IBIT holds half of crypto ETF market share. Strong market demand and introduction of options trading in November has fuelled massive rally in BTC prices.
However, the ETF has also seen hiccups lately. On 3rd January 2025, NASDAQ:IBIT recorded its largest single-day outflow of USD 333 million, also marking its third consecutive day of outflows. These withdrawals align with BTC’s recent pullback. The meteoric rise of ETF underscores a growing appetite for institutional-grade exposure to the token.
HC Wainwright has raised its BTC price target for 2025, boosting projections from USD 140,000 to USD 225,000, citing growing institutional adoption and a favourable regulatory outlook. Meanwhile, Bernstein has similarly forecasted a price of USD 200,000 by the end of 2025, dubbing this period the “Infinity Age” of mainstream financial integration. Also, Geoff Kendrick, Head of Research, Standard Chartered Bank, echoed this optimism, projecting BTC to hit USD 200,000 by year end.
Hypothetical Trade Set Up
Bullish drivers supporting BTC prices are many. The tailwinds are strong. But many of these are hinged on the new administration keeping up to its election rally promises. The token is priced to perfection and has risen so sharply that even a little disappointment in policy expectations can result in sharp price pullback.
In times of such elevated expectations for such assets, the term structure of futures tends to price in steep contango in line with soaring hopes. As of close of markets on 7th January 2025, CME Bitcoin Futures signals a decent steep contango term structure that enables astute investors to lock in market neutral cash and carry yield.
The table below translates the term structure into annualised futures premium for the first six months of the year.
Executing a BTC cash-and-carry trade requires buying into spot BTC while selling a futures contract to neutralise price and market risk. This paper proposes a hypothetical trade using the iShares Bitcoin Trust ETF (“IBIT”) and CME Micro Bitcoin Futures Contract (“MBT”).
The NASDAQ:IBIT and the MBT products move in tandem with a correlation co-efficient of 1.
The above table points to the highest futures premium while selling the February 2025 MBT contract.
Matching one BTC requires 1,769 units of $IBIT. Each MBT represents 0.1 BTC. A portfolio comprising of a long position in 177 units of NASDAQ:IBIT and a short position in MBT expiring on 28th February 2025 results in a market neutral cash and carry trade to harness the futures premium.
A cash-and-carry trade enables portfolio managers and traders to lock in the futures carry. As the futures contract reaches expiry, the spot and futures prices converge resulting in realisation of the futures premiums.
In the meantime, the P&L of this spread remains intact so long as the steepness in the term structure is constant regardless of BTC price moves. The P&L of this spread trade rises if the term structure flattens. Conversely, if the term structure steepens, it will result in a loss until price convergence occurs at expiry.
The spread trade P&L is summarized below. As explained above, when the spot to futures price differential remains constant in USD terms, the spread P&L remains unchanged at USD 144.67 per lot.
When futures contango flattens, the P&L will rise but eventually converge at expiry. Should that occur, traders can close out the spread trade with a larger P&L without having to hold the position until expiry.
However, if the term structure steepens, then the spread trade will incur losses, and those losses will turn into cash & carry profit of USD 144.67 per lot as prices converge at futures expiry.
Please note that the above calculations do not account for direct costs (trading & clearing fees) and indirect costs (cost of funds required for holding long IBIT position and short MBT futures).
