The Chicago Board Options Exchange (CBOE) is planning on launching Ethereum futures trading, pending approval from the Commodities Futures Trading Commission (CFTC). The futures are projected to launch by the end of 2018, and will be based on Ether’s price on the Gemini exchange. This would make it the only cryptocurrency besides Bitcoin to have official futures trading in the United States.
CBOE is one of two exchanges that offer Bitcoin futures trading, the other exchange being the Chicago Mercantile Exchange (CME). Bitcoin futures trading launched in December 2017 and has become a popular crypto investment mechanism, with billions of dollars of Bitcoin futures contracts traded on CME every month.
Ethereum is probably the only other cryptocurrency that has any chance of getting approved for futures trading by the CFTC. This is because the Securities and Exchange Commission (SEC) has declared Ethereum is not a security since it is sufficiently decentralized and, therefore, falls under CFTC jurisdiction as a commodity. Out of the thousands of different cryptocurrencies, only Bitcoin and Ethereum have been officially given the green light to be traded without SEC approval.
Additionally, Ethereum has the second highest crypto market cap at USD 28.6 billion as of this writing on 31 August 2018, versus Bitcoin’s market cap of USD 120.7 billion. Ethereum has trading volume in excess of USD 1 billion per day, making it liquid enough to support institutional investment, a key factor for being compatible with futures trading.
The launching of officially-regulated Ethereum futures has both a downside and an upside. The upside is that this will give institutional investors a way to invest in the cryptocurrency on major stock trading platforms, and could generate positive speculation in the Ethereum market.
The downside is that Ethereum futures contracts will be derivatives that are backed by cash and settled for cash, instead of being backed by actual Ether, effectively making them paper Ethereum. When institutional investors buy contracts, it won’t increase spot demand or price, and actually will divert money away from the spot Ethereum markets long term. Therefore, Ethereum’s price long term will probably be lower than it would be if this paper Ethereum on the CBOE futures market didn’t exist.
This isn’t the first time paper Ethereum has been issued however, BitMEX recently began offering Ethereum derivatives trading. This could be worse than anything possible on CBOE since BitMEX traders can short Ethereum and even leverage their shorts 100x. The CEO of BitMEX ominously called Ethereum a shitcoin and says it will crash to below USD 100, from its current position near USD 300. He said this right after BitMEX listed Ethereum.
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