Should Ethereum (ETH) Investors be Happy or Afraid of Ethereum Futures?

Recent comments from William Hinman have all but confirmed that SEC will in fact not be looking to regulate Ethereum as a security. Hinman pointed out that Ethereum doesn’t fit the requirements to be classified as a security because there is “no reasonable expectation of a third party to profit from the asset”. He further added:

Putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.

This clarification eased the minds of many in the crypto market, even though the SEC is yet to take an official stance on the issue. As a result, Ethereum’s price saw an immediate rise, moving from 460 to just over 520 USD in an hour’s time.

Another important effect of this announcement has been a revival of the idea of Ethereum futures trading. CBOE Global Markets President and COO Chris Concannon had this to say about the apparent SEC thoughts on Ethereum:

“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.”

While Ethereum futures are already traded on Crypto Facilities, a UK-based intermediary, both CBOE and CME need to start trading them as well to achieve commercial levels of exposure. Per Coindesk, Crypto Facilities is partnered with the CME Group and is powering the latter’s Ether Reference Rate Index. A similar index played a key part in CME’s launch of Bitcoin futures, so all the signs suggest that Crypto Facilities are testing the Ethereum futures for their larger partner.

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Launching Ethereum futures could have a long lasting effect on this coin’s market. Some people expect these effects to be positive. If we remember what happened when BTC futures initially launched, we saw Bitcoin (and the crypto market in general) reach their all-time highs. While the all-time high did coincide with the futures going live, some theories suggest that the introduction of said financial instruments contributed to the post-January market decline.

“The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence,” four researchers wrote in the San Francisco Federal Reserve’s most recent Economic Letter. “It is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.”

Therefore, we could see something similar happen if Ethereum futures launch on a major platform like CME or CBOE, with the coin experiencing a rapid rise in price followed by a prolonged downtrend. Most of this will be related to an expected increase of Ethereum shorting, as futures will allow traders to bet on the coin short-term. An over-abundance of shorting might create an excess supply of Ethereum, causing the price to go down and forcing the long traders to sell of their holdings.

Ultimately it’s difficult to say what will happen if and when ETH futures go live. This financial instrument is important because it motivates institutional money to join in the markets; since this lack of “real” investors has been a major issue for crypto, futures trading will help bring in additional volume. The negative effects of this remain real and could lead to a further downturn in fortunes for a market already red as a bull fighter’s cloth. As with everything crypto related, we’ll just have to wait and see what happens.

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