The new chairman of the CFTC hinted that ETH futures may be launched soon, will it be the next big derivative to hit the market?

The US Commodity Futures Trading Commission (CFTC) has no intention of obliterating Ethereum (ETH) but is willing to monitor it. This is the message from Heath Tarbert's speech at the Yahoo Finance's All Markets Summit in New York on October 10th, which may be in the encryption and blockchain industries. Have an important impact. He continued:

“As the chairman of the CFTC, I think ETH is a commodity, so it will be regulated by the Commodity Exchange Act (CEA). My guess is that in the near future, you may see future contracts related to ETH. Trading on other derivatives with the market."

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Image source: visualhunt

The Ethereum ecosystem is an open source blockchain platform with a smart contract function. Its native cryptocurrency ETH, as a commodity, will be regulated by the Commodity Futures Trading Commission in the US; on the contrary, if it is identified as a Securities will be regulated by the US Securities and Exchange Commission (SEC).

From this point of view, the definition is crucial. Bitcoin (BTC) is also a commodity in the eyes of US regulators, and its futures contracts have been trading since the opening in December 2017. Perianne Buring, chief executive of the Chamber of Digital Commerce, told Cointelegraph that the CFTC chairman’s statement was “very important” and added:

“The President of Tarbert hinted that ETH derivatives may be launched soon, which is a sign of market maturity and an encouraging step in the United States in recognizing the benefits of digital assets.”

It is still too early to judge when the first ETH futures product will be listed. A spokesperson for the Chicago Mercantile Exchange (CME), the largest participant in the Bitcoin futures market, told Cointelegraph, "CME Group currently has no plans to introduce more cryptocurrency futures, including ETH futures." He added:

“Currently, we focus on bringing CME Bitcoin futures options to market in the first quarter of 2020.”

Attract more institutional investors?

More futures trading tools can help the encryption industry attract institutional investors such as mutual funds and hedge funds. Funds often have investment restrictions that allow them to invest only in specific assets in their portfolio, which limits their ability to invest in digital assets. But when the encrypted futures contract is settled, the investor gets dollars, not bitcoin or ETH, which may have an impact.

Mainstream investors have also been hampered by Bitcoin and ETH because of storage issues. If the investor's private key is lost, they lose their bitcoin. In addition, although there are custodians and market makers responsible for storage and investment, the cost of such services is often high. By investing in a futures contract, participants can bet or short on the price of a cryptocurrency without having to actually own or store the cryptocurrency.

Lanre Sarumi, chief executive of Level Trading Field at the Encrypted Asset Derivatives Exchange, told Cointelegraph that "institutions are still not very interested in encryption." The exchange believes that if they launch a bitcoin futures product, the agency will participate, but the market reaction is often not optimistic. For example, in March of this year, the Chicago Board Options Exchange (CBoE), the first US exchange to introduce bitcoin futures, announced that it would stop listing the product. Sarum added:

“Institutional investors seem to have found more attractive investment options elsewhere, and ETH futures may not perform as well. We are talking about the cryptocurrency ETH, not the blockchain platform Ethereum, although Ethereum continues to attract institutional interest."

The Chicago Mercantile Exchange told Cointelegraph that the average daily trading volume of Bitcoin futures contracts in the third quarter of 2019 was 5,534, an increase of 10% from the same period in 2018, but lower than the second quarter of 2019. The company noted that institutional investors are increasingly interested in third-quarter bitcoin futures contracts. Recently, the Chicago Mercantile Exchange also notified the CFTC that it will increase the spot contract limit from 1,000 to 2,000.

At the same time, on October 9, the Bitcoin futures contract on the Intercontinental Exchange's Bakkt platform reached a record 224, valued at $1.92 million. However, for most of the trading days of the past two weeks (September 24 to October 15), the daily transaction volume was less than $1 million.

Stable market

Futures are only contracts that buy and sell a specified number of assets at a specific price and date. When the underlying assets fluctuate greatly, these futures can play a role in stabilizing the market. For Bitcoin, it is similar for ETH. As New York University's NYU Stern professor David L. Yermack pointed out to Cointelegrahp, these regulated futures contracts help stabilize the encryption market: he said:

"I don't see the difference in economic principles between ETH futures and Bitcoin futures. However, the speculative trading volume of ETH futures is much less. Therefore, the market demand for ETH futures remains to be seen."

However, the question remains: Will futures trading lead to financial manipulation or market monopoly? Margaret Ryznar, a professor at Indiana University, writes that some people are worried that the government relies on profitable exchanges (such as CMEs and CBOEs) instead of the government regulator CFTC to certify new ones. Futures products.

Self-certification requires the exchange to prove that the new contract is not easily manipulated, Lezner added, “Futures often lead to systemic risks, but the unique characteristics of Bitcoin futures are more worrying.”

Although the SEC and CFTC seem to have acknowledged that both Bitcoin and ETH are commodities, not securities, this clarity is not guaranteed in the future. This seems to depend on the current degree of decentralization, ie the extent to which cryptocurrencies are controlled by third parties.

Tarbert said: "You may encounter a situation in which some tokens in the first token issue (ICO) are initially securities, but over time, it becomes more decentralized, There is real value, so there are things that can change back and forth.” This may not be ideal, especially for institutional investors who are eager to regulate certainty.

Spencer Bogart, head of research at Blockchain Capital, points out that shorting bitcoin is “very risky” because there are no natural points like price–earnings ratios. People judge whether this cryptocurrency is overvalued. The situation of ETH is probably the same.

Indeed, the US Futures Association (FIA) believes that ETH has a smart contract function that is technically more complex than Bitcoin and may be more difficult to manage risk. The FIA ​​urges the CFTC to thoroughly review any ETH derivatives contracts.

CME is about to launch bitcoin options trading?

As mentioned earlier, CME plans to launch a bitcoin option product in the first quarter of 2020, which is currently awaiting review by regulators. Although futures and options are derivatives, they operate differently. A futures contract is a buyer who buys and sells the underlying asset at a previously agreed execution price.

In contrast, options are not mandatory; options may never be executed. CME's Tim McCourt said options are expected to be welcomed by Asian traders and miners. When asked about the meaning of Tarbert’s recent speech, Salumi said:

“These speeches are very important. Any company that has hesitated before now has a statement that can be relied upon. But will this encourage institutional investors? I don’t think so.”

In his first public appearance after becoming the chairman of the CFTC, Tarbert also emphasized the importance of blockchain and digital assets to the United States, which is simply true for digital asset evangelists such as the Chamber of Digital Commerce. It is a sweet song. Puning said that the United States has been lagging behind in blockchain innovation and has rarely received support from US policy makers and regulators. But now, the CFTC chairman has publicly said here, "I hope that the United States will play a leading role, because no matter who is in this Leading in technology, he will eventually make the rules of the game."

In short, it is fair to say that regulators and exchanges have been working hard to develop bitcoin derivatives that are both safe and attractive to investors, especially institutional investors. For the more technically complex ETH, doing the same thing can be more challenging.