While Ethereum is struggling with legal challenges in the United States, will we be seeing Ethereum-based Futures in 2019? We just might.
According to a recently released series of questions from the CFTC, the United States Commodity Futures Trading Commission, sent out for the public to answer, with an emphasis on the mechanics of ETH and the underlying market appetite for the token.
While there are traders out there that are genuinely surprised that Ethereum futures are something being considered is the only real surprise. There have, in fact been a number of times when these futures have been considered.
The more recent example of this includes CBOE Global Markets, which gave its opinion on featuring them back in July. While this is initially awaiting consideration from the CFTC, it at least implies that there have been some discussions with a regulatory body.
Now while ETH futures are not a surprise, the approach that the CFTC is taking is quite impressive – and it sets an otherwise interesting precedent for the development of cryptocurrencies on the marketplace in the foreseeable future.
Ethereum Futures up for Consideration?
This pertains to a change in the role that CFTC is taking to cryptocurrency. But it is worth looking at how likely it really is to see the creation and addition of these futures is in the short term.
One perspective to take is this: the inclusion of Ethereum-based derivatives would offer the CFTC a rare position of having insight into this market, allowing it to operate as a more effective monitoring body. Overall, this will allow it to monitor activity and prosecute illegal activities with a far higher level of effectiveness.
While this is an incredible prospective scenario, there's a whole other way that this inclusion can lead to. The CFTC has, in the past, been firm in stressing the importance of ensuring that the dangers of manipulation to any degree be actively combated. This means that mitigating it in the crypto market too.
Prior research conducted by an academic institution has demonstrated that the price of cryptocurrencies like Bitcoin was subject to manipulation, both during and after the launch of Bitcoin futures on the Chicago exchange.
Now while outsiders and active investors know all too well that Bitcoin is a crypto of its own style, and Ethereum is not like it in terms of value in any way. In particular, its volume is only a third of the scale of Bitcoin, but while that is the case, Ether too is vulnerable to the same manipulation, spike, and slump.
One of the further risks that Ethereum faces is the fact that Ethereum's up and coming consensus protocol switch is drawing near. Currently, ETH makes use of the proof of work consensus, and any move to the proof of stake system has all the danger of hitting its integrity in a major way.
One thing that takes away from the risk of a plunge in ETH's value is the fact that any consensus switch will only take place after strenuous testing by the community. But while this is the case – no matter how thorough the testing is, it can't fully eradicate the potential of something going wrong.
One further risk is that any trade over issue will lead to a ripple effect that hits the derivatives market, not just from confusion caused to the investor pool, but also a potential spike or slump in the level of demand for Ethereum after the switch over.
The CFTC certainly has the potential to gain a substantial level of influence with its positive approach to ETH futures, providing it with the ability to ensure good practices, there are still some serious issues that need to be considered before pressing ahead.
The Roadblocks to Progress
Should the CTFC decide that, while positive to a prospective ETH futures market, it finally rules against it being traded on any platforms that do operate under its sight, does it have the power to prevent them from hitting the market without its approval? One of the issues that comes into the mix is the Commodity Futures Modernization Act.
Enacted officially in 2000, the Commodity Futures Modernization act was responsible for the creation of what we now know as self-certification. This action allows for exchanges to commence trading of new contracts the day after it has demonstrated that it is adhering to the necessary regulatory obligations required of it.
This allows for the CFTC to make sure fair practices have been followed while giving exchanges a great deal of flexibility in what is included on their markets.
It's really challenging to envision that there is an exchange capable of showcasing this sort of documentation in front of the commision for ETH futures. This is especially hard to consider, especially with the knowledge that, should the commision choose to deny this self-certification it would wholly contravene previous legislation put out by the agency, which states that if a contract is shown to be compliant, there's no objection that can be put in the exchange's way.
In January, Chairman Giancarlo made a statement to the community, in which he was replying to criticism regarding the rushing through of Bitcoin Futures positions without the inclusion of the public in consideration. He argued that the self-certification process rules were put forward in order to serve as a driver for innovation, allowing for the rapid implementation of new products on the market.
He did go on to add, however, that there was a review checklist, including the underlying requirements that those exchanges adhering to the self-certification process do seek to be more accommodating to sector responses, especially where the inclusion of new products is concerned.
Now, this is where we really see a change in tact.
A More Direct Approach Towards the Market
When Giancarlo first took the position as Chairman of the CFTC back in early 2017, he stated that one of the main objectives that he had was to increase the level of influence that the organization had over the markets that it helps to regulate. He had previously spoken in more positive tones over the potential for the inclusion of cryptocurrencies to the market.
In the aftermath of these statements, the organization has since been positioning itself towards a deeper level of oversight in its support of emergent, innovative asset classes.
Instead of allowing the likes of Bitcoin Futures a quick listing in order to parallel the other certifications which are comparably far faster in terms of processing time. The CFTC was previously in dialogue with exchanges for a number of months before they were able to launch, while it proved to be thoroughly instrumental in improving the margins and obligations such as the level of information shared.
For Ethereum futures however has only gone above and beyond what other positions are made to go through.
When we compare what other commodities or asset classes have to go through, it's obscure to see the CFTC taking the question to the public in the listing of this crypto-asset. While it proves arbitrary for cryptos, it does demonstrate a new relationship between public and private – with far more collaboration between the two. However, this is a collaboration that is relatively open-ended, having a time-frame of now until February. And if the community is anything to go by, they have been highly enthusiastic about the inclusion of Ethereum.
A Collaborative Initiative
As the market drives ever forward, this co-operation has all the potential to create a new generation of stronger, more stable cryptocurrency markets, with a dedicated community, and institutional support and oversight.
Having a higher level of involvement and communication from the CFTC, a far better comprehensiion of what the technology means can offer it better insights into the effectiveness of a crypto derivative or spot platform. The end result of this would be a firmer comfort level, and more growth from any future which may be added.
Another benefit is an added layer of legitimacy which can be given to the cryptocurrency world. This, in turn, can lead to a far higher level of institutional investment in the crypto assets which are subsequently included.
Which will go on to create a virtuous circle of new assets, firmer support from the community and greater traction.