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German Derivatives Exchange Supposedly Considering Crypto Futures Contracts

German Derivatives Exchange Eurex May Launch Crypto Futures Contracts

German-operated derivatives market Eurex is rumored to soon turn on the futures contract faucet, releasing its own set of cryptocurrency derivative contracts. If true, the first wave of contracts will include Bitcoin, Ethereum and Ripple (XRP) coin future contracts.

Citing people familiar with the development, media outlet The Block Crypto said that the exchange is meeting with market making experts with regards to the product.

Though no official comments have been made by the firm, the move, if true, comes as no surprise seeing how it had set its target on the crypto market since 2017. In 2018, a division was set up for crypto assets and distributed ledger technology. During that period, a Deutsche Börse spokesperson reportedly told German-based news media:

“We are thinking about futures, with which private investors and institutional investors can protect existing investments in bitcoin or set for falling prices of the cyber currency.”

More so, while Deutsche Börse acknowledged the fact that they have been in touch with the space for a while now, it had only been in the “ideation and exploration” phase but will need a “centrally steered approach” for a full-scale expression of the technology in their business.

The future of the crypto derivative market continues to take shape as new players are being introduced joining others in the queue for regulatory approval. Bakkt, Seed CX, and ErisX are among those seeking to introduce new settlement types into the US market – the physical Bitcoin settlements – adding variety to already established market place for crypto futures contract offered by pioneers CBOE and CME.

CBOE also wants to launch an Ethereum futures contract and is only waiting for the approval from the regulatory watchdog. So far, net sentiments from the idea of an Ethereum futures contract have been somewhat positive.

A couple of other cryptocurrency exchanges such as BitMex, CoinFloor, and Binance are already marking their space in the advanced cryptocurrency market to suit sophisticated investors. As the industry continues to mature, perhaps the market will take a complete semblance to that of the traditional financial market and may appeal to more mainstream traders and investors. Although regulation may be pivotal to this development, the CFTC has a workaround on how to allow the exchanges self-regulate in line with the stipulated financial laws, as an interim approach before a more constituted legal infrastructure is in place.

Moreover, the major contention lies in the security of services provided – the custody infrastructure and market monitoring instruments – constituting major impediments to the launch of other derivate market classes like the Bitcoin ETF, which has had many of its proposals declined or for many months under review by the Securities and Exchange Commission (SEC).

Nonetheless, it behooves any financial service operator willing to engage in this emerging market class to do a proper groundwork before launching any product into the market. As there are currently a few products, yet only a handful of institutional investors have dipped a foot in the water, although this number may be increasing steadily, still it only proves that a more comprehensive market infrastructure may be the only key to unlock the market for a full-scale adoption by institutions.

 

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Ethereum Futures Contract: Net Sentiment Appears Positive

Ethereum Futures Contract: Net Sentiment Appears Positive

The United States Commodity Futures Trading Commission (CFTC) is currently reviewing entries from its Request for Input on Crypto-Asset Mechanics and Markets initiative set up last year aimed at collecting information about Ethereum and the resulting impact of a futures contract based on the digital asset.

After reviewing 43 entries, of which 29 of them seem to provide credible insights into the subject matter, an overall assessment may be that of positive sentiment towards an Ethereum-based futures contract. Of the entries, industry experts such as members from the Ethereum Foundation, Coinbase, Consensys, Circle, Craig Wright, ErisX, among others had provided their opinions about the stance of Ethereum in comparison to Bitcoin – which already has an approved futures contract running.

Highlights from the entries included describing the nature of Ethereum as being essentially a smart contract decentralized application (Dapp) creator first, before being considered a store of value or as a medium of exchange.

The Ethereum Foundation clarified that the intrinsic designs of the Ethereum network are “not financial in nature but simply use the blockchain as a source of high-assurance computation and data storage”.

Circle emphasized on Ethereum’s medium of exchange value: “As with Bitcoin, Ether can be used to pay for transactions and can be used for payments. Unlike bitcoin, tokens on the Ethereum network can be generated using smart contracts and can be used in smart contracts and transfers.”

Another comparison described Bitcoin as simply a store of value and medium of exchange, while with the nature of Ethereum’s versatility, the risks scale alongside, as the Futures Industry Association (FIA) opined: “With the Ethereum Network’s architecture, risk management is potentially more complicated than for Bitcoin by orders of magnitude…”

On the other hand, when the regulator asked about the impact of an approved futures contract on the asset itself, ErisX offered its opinion, suggesting that it would have a more positive impact on the growth and maturation of the market. It believes a futures contract will provide “the potential for greater liquidity, more effective price discovery, and more efficient risk transference”.

Although other players in the industry may have had slightly more critical views about the Ethereum network, the compromise did come at a shared view from larger players on more regulatory oversight on the industry.

The first obstacle to a second official cryptocurrency futures contract in the United States may have been scaled when the Securities and Exchange Commission (SEC) said Ethereum won’t be regulated as security. The second important milestone is an approval from the CFTC, which was initiated when the regulator asked for public opinions about the Ethereum network. CBOE plans to launch an Ethereum futures contract currently awaits the regulator’s approval.

Bitcoin futures contract were launched by Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) in late 2017, which had a compelling effect on the crypto market, taking it to new all-time highs at the time. One major sentiment in the market is that more derivative contracts would have a similar effect on the market. As such, an approved Ethereum futures contract in the US may bode well for the Ethereum support community since the asset’s market value has depreciated by as much as 94.2% at some point; and currently, its price has dropped 89.6% since it’s last all-time high.

Although cryptocurrency exchange BitMEX currently offers an Ethereum futures contract quoted in Bitcoin and has been receiving positive patronage in recent times, still, the market could be set up for an explosive uptrend should the CFTC grant its approval to the CBOE exchange.

 

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Coinfloor to Launch Derivative Crypto Futures Amid Tough Market

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Top UK cryptocurrency exchange Coinfloor has told Bloomberg, that it is venturing into the derivatives market despite the seemingly poor market outlook and fierce competition in the futures market, with physically-delivered Bitcoin futures the new emerging derivatives for the asset class.

The CoinfloorEX spinoff of the Coinfloor cryptocurrency exchange will be offering the new physical Bitcoin futures services to sophisticated Asian traders. Meanwhile, it has been renamed to Coin Futures and Lending Exchange (CoinFLEX) for this purpose.

According to the CEO of CoinFLEX Mark Lamb, who is also a co-founder of Coinfloor, “bear cycles in crypto can go on a long time, but ultimately it’s an asset class which is one of the most fascinating, volatile, which is great for traders”. Lamb also downplayed the current market condition, confident that crypto will someday become globally accepted, saying that “it has the potential to be one of the major currencies in the world”.

CoinFLEX will have its base in Hong Kong. The proposed derivatives will include physical futures for Bitcoin, Bitcoin Cash, and Ethereum with leveraging of up to 20 times. Comparatively, top cryptocurrency exchange BitMex, also having a sizeable market in Hong Kong, will be a competitor as it also offers leverage of up to 100 times on some of its contracts. However, CoinFLEX has the advantage of physical delivery as against cash settlements that are prone to manipulation.

Prominent crypto movers have been named as members of a consortium owning the project, including Roger Ver, Mike Komaransky and Trading Technologies International Inc. Meanwhile, Coinfloor is also reported to be retaining an equity stake in the new venture.

It would seem that the market for institutional investors is constantly being expanded with multiple derivative options. “Crypto derivatives could become an order of magnitude larger than spot markets and the main thing that’s holding back that growth is the lack of physical delivery,” said Lamb.

Last year, talks about the proposed Bakkt platform – an Intercontinental Exchange (ICE) project – constantly drove up the expectations of cryptocurrency holders and investors. Its recent announcement included a successful seed round funding of over USD 182 million, and a scheduled launch early this year, however, the date “will be amended pursuant to the CFTC’s process and timeline”.

Another derivative platform, ErisX, recently reeled in USD 27.5 million from Fidelity Investments, Nasdaq Ventures, and other investors during a seed funding round. It is also waiting for approval from financial regulators before launching this year.

Recently, the Japanese financial regulator hinted on the possibility of the launch of exchange-traded funds (ETF) that will be based on the new asset class.

 

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