American financial regulators announced their readiness to approve a new cryptocurrency derivative. Will Ethereum reach its historical maximum or the price will dramatically drop? Let’s take a look now.
Ethereum Futures
Heath Tarbert, Chairman of the US Commodity Futures Trading Commission (CFTC), said the agency was ready to approve the launch of Ethereum futures, but so far the regulator has not received a single relevant application. According to Tarbert, derivatives for the largest altcoin by capitalization will appear in the next 6-12 months, that is, they will be launched as early as 2020. He noted from the stage at Yahoo Finance All Markets Summit in New York City on Oct. 10:
“It is my view as Chairman of the CFTC that Ether is a commodity, and therefore it will be regulated under the CEA. And my guess is that you will see in the near future Ether-related futures contracts and other derivatives potentially traded.”
Futures is a contract under which both parties undertake to complete a transaction in accordance with predetermined conditions. Participants in the transaction can only choose the price of the contract and the time for its execution, the rest is left to the exchange.
Ethereum is officially recognized as a product, so companies can easily launch Ethereum futures in the United States. Similar contracts related to Bitcoin are now available on the CME exchange.
Will this bubble finally burst?
In October of this year, the former head of CFTC Christopher Giancarlo announced the launch of the first Bitcoin futures on the CBOE and CME exchanges was specifically approved in order to “burst the bubble of the first cryptocurrency”. On December 17, 2017, the asset set a historic maximum value of $ 20.000, new crypto derivatives appeared the next day, after which the price caused a continuous slope until it collapsed to $ 3.200 by the end of 2018.
As Giancarlo explained, with the launch of futures in the regulated market, there was an opportunity to open short positions. Therefore, such an initiative regarding Ethereum can also seriously affect the cost of the cryptocurrency.
According to EXMO co-founder Ivan Petukhovskiy, the chance of Ethereum rise from the launch of futures looks dubious, since it did not help Bitcoin at one time. The expert is sure that the largest altcoin by capitalization has more fundamental reasons for growth in the medium term:
- Active development of decentralized applications (dApps) on the Ethereum blockchain, especially decentralized finance (DeFi);
- Transferring part of the tokens of the largest stablecoin, Tether, to the Ethereum network, and at the same time, the work of another stablecoin, DAI;
- The beginning of the migration to the network of banking financial assets; 40% increase in the number of active wallets since the beginning of this year;
- In September, ETH miners managed to get a return on commission fees above the income of Bitcoin miners.
“Although currently, the price of ETH is still less than 12% of its highs, it definitely has great growth potential. And here the launch of futures looks more like a containment mechanism. So far, the US regulator has actually called for the launch of Ethereum futures, having repeatedly emphasized their willingness to approve them. But more than 10 days have already passed, and there are no reports of relevant applications. It seems that the major players have not yet shown interest in such an instrument, ”suggested Petukhovsky.
The fact that Ethereum futures will not be a decisive factor for price increases is convinced by some of the leading cryptocorporation analysts. Among the main drivers of altcoin growth in the next year, they named a full-fledged transition of the project to the PoS algorithm and the launch of Ethereum 2.0. This hard fork should solve the problem of scaling and allow the project to overtake its competitors EOS and TRON in terms of cheaper and faster transaction processing.
The fact of launching cryptocurrency futures is a controversial event for the market due to the statement of the former head of CFTC Giancarlo. Even the fact of launching derivatives on cryptocurrency can be a politically biased decision, which may be especially relevant in anticipation of the US presidential election in 2020.
Still, some experts are sure, that Ethereum remains one of the most promising altcoins. The expectations are historic highs at $ 1.400 to be reached no earlier than the third quarter of 2021, primarily due to fundamental changes in the project, its development, and improved network performance.
Another part believes that the introduction of any regulated investment instruments will be useful for the cryptocurrency market. The reason is that they are intended for use by institutional investors who have restrictions on their activities, for example, cannot store digital money due to a lack of custodians or invest directly in them.
“The issue of Ethereum futures is also significant because this is the first such altcoin contract. The regulator’s willingness to approve ETH futures in the foreseeable future speaks of the growing maturity of the market and the emergence of new independent crypto assets. Earlier Bitcoin was considered as such, now the ether joins it, ” - trader United Traders noted.
What to expect?
Most experts are confident that Ethereum futures will not affect the market. However, the latest statement by Giancarlo raised doubts that after that the value of the asset will not start to decline sharply, or vice versa - to increase. Probably, new altcoin contracts are good in the global sense since it indicates the maturity of the market. On the other hand, for the asset itself and its value, futures can lead to negative consequences.