What to Expect If Ether Futures Become a Reality?

Less than a year after the launch of the first ever futures contracts for Bitcoin, Ethereum could be the second cryptocurrency to be traded on regulated futures exchanges.

It’s understood that the Chicago Board Options Exchange (CBOE), the same platform that launched Bitcoin futures in December 2017, is waiting for the green light from the Commodities Futures Trading Commission (CFTC) to launch Ethereum options by the end of 2018.

The CBOE will base its ETH contracts on the Gemini cryptocurrency exchange market — the base it already uses for its Bitcoin futures.

With the United States Securities and Exchange Commission (SEC) formally declaring that Ethereum was not classed as a security in June, the path ahead was seemingly paved for the prospective launch of ETH futures.

At the time, CBOE president Chris Concannon hailed the decision, saying ETH contracts had been a talking point since late 2017:

“We are pleased with the SEC’s decision to provide clarity with respect to current Ether transactions. This announcement clears a key stumbling block for Ether futures, the case for which we’ve been considering since we launched the first Bitcoin futures in December 2017.”

Just three months later, there are very real grumblings that this could come to fruition, much like the build up to the eventual launch of Bitcoin futures in 2017.

The CBOE has indicated to Cointelegraph that it is indeed looking at Ethereum futures, highlighting Concannon’s interview with Quarts in June, where he laid out their thoughts on the cryptocurrency and the possibility of a futures contract:

“Ether is one of the more highly liquid cryptocurrencies out there. Along with Bitcoin, the demand is much higher in Ether than any other cryptocurrency on the market. We’ll look at launching futures in the near term, but there’s a process we have to go through before even announcing such a launch. That process is something we’ve talked to the CFTC about at length and certainly want to take steps along that process and make sure everybody is comfortable with the next product we announce.”

According to Concannon, there is significant demand and appetite for Ether futures. Having successfully launched Bitcoin futures, the CBOE hopes to use that same product design and structure and apply it to any cryptocurrency futures that may be looked at in the future.

The CBOE wouldn’t divulge any more details at this point in time, saying the relevant information would be communicated in due time.

What could happen

While the finite details of when we can expect to see these Ether futures launched is yet to be revealed, the possibility of these new offerings had a neutral effect on different cryptocurrency values.

The price of ETH turned around from a slight slump on August 31, which could be attributed to these initial reports. The price of Bitcoin showed a similar movement pattern, with a strong uptick on the same day.

Crypto market 31.08.–01.09.2018. Source: coin360.io

In response to the first reports of the CBOE’s plans, Fundstrat’s co-founder Tom Lee told Business Insider that Ether futures would have an initial negative impact on the price of the cryptocurrency:

“Since December of this year, if one was bearish on any aspect of crypto but did not want to own the underlying, they could short BTC. They can now short Ethereum, [which] means the net short on BTC in futures would fall.”

Good or bad?

It is not easy to predict what any market will do, and this is especially true for cryptocurrencies. However, big moves like this by mainstream financial institutions seem to influence the price of cryptocurrencies.

Cointelegraph spoke to eToro senior market analyst Mati Greenspan to get an educated view on how the launch of Ether futures could potentially affect the price of the cryptocurrency.

Greenspan was upbeat about the possibility, saying that Wall Street is working hard to build bridges to the crypto market, calling the launch of Ether futures a critical next step.

While some people on social media cited concerns that aggressive shorting would hurt the value of Ether, Greenspan offered a counterargument to that point:

“The ability to go short is a critical component of price discovery. So this is ultimately a healthy thing for the market.”

Furthermore, Greenspan believes that an Ether futures contract will put the cryptocurrency in the spotlight, which could very well attract new investors with deep pockets. The eToro analyst also believes that it could have a knock-on effect for other cryptocurrencies:

“Crypto prices are correlated strongly with each other. So anything that's good for Ethereum should be good for Bitcoin and vice versa. So far, the futures volumes on Bitcoin have been relatively small and insignificant to the rest of the market, but as interest from institutional investors changes, we should be seeing higher volumes and new ways to trade them.”

While Greenspan offers a far more optimistic prediction of things to come, there are those that have a more cautious view of the potential launch of Ether futures.

Phillip Nunn, CEO of Wealth Chain Capital, told Cointelegraph that there is potential for certain investors to short Ether, which could have some serious consequences for companies that have launched ICOs on the Ethereum blockchain.

Nunn likens the launch of BTC futures to the FX markets some 30 years ago, where futures markets had a big sway on markets:

“2018 has seen a massive shift in the behaviour of crypto mainly due to the advent of Bitcoin futures, the charts have been different and clearly there has been market manipulation and "whales" dominating the market either way. Someone is making a lot of money. It's similar the the FX markets in the 80's and 90's where it was easy to influence markets via longs and shorts.”

Furthermore, Nunn sites the risk futures pose to companies that have raised money using ERC20 tokens:

“I worry for ETH on a couple of levels. Firstly it's market cap is a lot smaller than Bitcoin and I think ETH futures could see it dipping under $150 maybe even $100. Add to that that 95% of ICO's raise money with ERC20 tokens in ETH, if an ICO has raised say $20m dollars and holds in ETH, suddenly that halves and I think it will trigger sell offs by these companies to BTC or FIAT to protect their interests.”

A different outcome?

While the crypto futures trail has been blazed by Bitcoin, it may well be difficult to draw any early conclusions from the launch of BTC futures in December 2017.

Shortly after the CBOE and the Chicago Mercantile Exchange (CME) launched their respective futures offerings, Bitcoin reached its all-time high of just over $20,000, before a humbling correction left markets in the red and reeling for months.

While various factors played a role in the significant pull-back in the cryptocurrency markets, it made life difficult when it came to judging how BTC futures affected the markets and influenced prices.

In July, CME indicated that it would not launch any other cryptocurrency futures offerings. However, it did release data that showed BTC futures average daily volume had increased by 93 percent over the first quarter of 2018.

Considering the growth in the number of BTC futures contracts midway through 2018, it could be fair to assume that there is a growing appetite for these type of financial offerings in the cryptocurrency space.

Nevertheless, the possible launch of Ether futures will be a space that will be keenly monitored in the months to come. As Nunn summed up in his comments to Cointelegraph, price prediction in the crypto space have been as good as a shot in the dark:

“Of course I could be wrong and it could fly to $1000 but it seems the futures strategies serve to stifle the true growth of crypto, This has certainly been the case with Bitcoin as all price predictions are out of the window.”