Ever since the CME launched futures for Bitcoin, investors have been asking for Wall Street-centric Ethereum futures. The reason: cryptocurrency investors believe these derivatives will catalyze ETH buying by an institutional audience.
Analyst Expects Ethereum Futures to Send Price Flying
According to a prominent crypto trader, “it won’t be long before we see [Ethereum] futures launch [on the CME].” He attributed this sentiment to the belief that with the introduction of Proof of Stake via ETH 2.0, demand for Ethereum derivatives could increase, thereby catalyzing exchanges to respond by listing futures.
Should this CME listing happen, the trader wrote, it will have a “huge impact” in pushing prices higher.
There was not much more backing this analyst’s assertion other than his belief that ETH 2.0 will catalyze futures demand, but the Commodity Futures Trading Commission (CFTC) has indicated strong support for this idea.
Speaking to Bloomberg earlier this year, chair of the CFTC, Heath Tarbert said that he expects Ethereum futures to come to U.S. markets in the near future:
“Certainly, we’ve seen Bitcoin futures, both cash-settled as well as physically delivered. My guess is we’re going to see Ether futures as well, and as things start to migrate into the commodities space, we’ll see even more.”
And late last year, at an event in Washington D.C., Tarbert said that he expected such derivatives to come to market within six to 12 months.
Because ETH is technically a commodity in the eyes of regulators, it is the CFTC that regulates U.S. futures and derivatives of the cryptocurrency.
There Is Likely Demand for Ethereum Futures
There is seemingly institutional demand for Ethereum, adding to the case to be made that futures will soon come to market.
Multi-trillion-dollar asset manager Fidelity Investments indicated late last year that responding to demand, it will try and implement Ethereum services in the near future.
There’s also Grayscale Investments, a crypto fund that registered over $100 million worth of ETH purchases in Q1 of 2020, most of which came from institutional investors.
With there being clear institutional demand for Ethereum and an approving CFTC, the only thing seemingly stopping a futures contract is the exchanges being hesitant to file for launch.
Don’t Get Your Hopes Up
While many are expecting for these vehicles to launch, not everyone is convinced Ethereum is ready.
CoinDesk’s Director of Research, Noelle Acheson, wrote in an op-ed that it is highly unlikely that “we will see ether futures in significant volume on a regulated U.S. exchange any time soon. If ever.”
Backing her scathing remark, Acheson looked to a confluence of factors. These include but aren’t limited to:
The relative illiquidity of Ethereum compared to Bitcoin
The uncertainty regarding the blockchain’s consensus mechanisms and potential contentious hard forks
The DAO hack
The proposed potentially security-like ability to stake ETH with a future update
The simple fact that Ethereum wasn’t built to be an investment asset, she argued. ETH was promoted as “gas” for the internet of value.
Her argument is that these characteristics of Ethereum make the cryptocurrency much more uncertain than Bitcoin. After all, while the CFTC may be approving of ETH, it’s the exchanges that take on much of the reputation risk when listing the product at the end of the day.
Photo by Soroush Karimi on Unsplash