The US Commodity Futures Trading Commission (CFTC), an independent agency of the American government that regulates the futures and options markets, may soon approve Ether (ETH) futures contracts. According to sources familiar with the matter, the CFTC could allow exchanges to offer ETH futures - provided the contracts adhere to the appropriate regulatory guidelines.
In statements reportedly shared with Coindesk, a spokesperson for the CFTC said:
I think we can get comfortable with an ether derivative being under our jurisdiction. We don’t do bold pronouncements, what we do is we look at applications before us. A derivatives exchange comes to us and says ‘we want to launch this particular product.’ … If they came to us with a particular derivative that met our requirements, I think that there’s a good chance that it would [get] self-certified by us.
Commenting on the matter, John Todaro, the Director of Digital Currency Research at Tradeblock, a provider of institutional trading tools for cryptoassets, remarked: “Many funds have mandates that do not allow them to buy the digital currency underlying.”
Todaro, a former bonds trader, added that a cash-settled futures contract which issues payouts in fiat currency, instead of the underlying cryptocurrency, would make it easier for hedge fund managers “to gain exposure to Ether.” He explained that they would not have “worry about custody (which has been a bottleneck to institutional investment).”
Todaro also noted that in the long-term, a CFTC-regulated crypto futures market “could usher in confidence among [other federal] regulators such as the [US] Securities and Exchange Commission (SEC) which could pave the way for a [cryptocurrency-based] exchange-traded fund (ETF).” This would add even more liquidity to the larger Ether market.
According to Todaro, an increase in institutional investments in the cryptoasset market would encourage more retail investors to enter the crypto and blockchain industry.
Notably, the launch of BTC futures contracts by the CME and Cboe received a positive response as the Cboe’s website crashed due to the large number of orders placed by traders (when the product was first introduced). Some analysts also argue that the Bitcoin price reached its all-time high of nearly $20,000 in December 2017 (partly) because of the launch of BTC futures.
CFTC Asked For More Information On Ethereum In Dec 2018
However, several analysts also believe that the introduction of Bitcoin futures may have resulted in a decline in the cryptocurrency’s price. According to Todaro, Bitcoin’s price was already headed towards an all-time high and that the launch of BTC futures (at around the same time) may not necessarily have any connection with bitcoin’s price.
In December 2018, the CFTC had revealed, for the first time, that it was looking into whether it should approve Ether futures contracts. The federal regulator had published a “Request for Input” (RFI) which consisted of several questions related to Ether’s market capitalization and Ethereum’s underlying technology.
CFTC’s questions also included those which asked about the proof-of-stake (PoS) consensus mechanism which Ethereum’s network will transition to, as it currently uses the proof-of-work (PoW) consensus protocol. CFTC’s questions also asked for more information, or disclosure, regarding how Ether deposits are processed and audited.
Looking Into "Range Of Issues" That May Arise After Launching ETH Futures
Moreover, the US commodities regulator inquired specifically about the potential impact of Ether futures on the larger cryptoasset market.
George Pullen, a senior economist at the CFTC, had previously noted:
After our initial public white papers, primers, on virtual currencies, bitcoin, and smart contracts it was clear that a one-size fits all approach to crypto was not appropriate and we needed to know more.
Pullen further mentioned that the RFI would help the CFTC better understand “the range of issues that might exist” if an Ether futures contract were offered. Pullen remarked (in March 2019):
It’s critically important for us to engage in outreach to understand the variety in technologies, markets, and the differences in the community; if we’re just listening to our own voices inside the building, the loudest voices in business, or just the voices in D.C. we could miss out on the bigger picture.
In December 2017, the CME Group (Chicago Mercantile Exchange) and the Cboe (Chicago Board Options Exchange) began offering cash-settled BTC futures contracts.