Hedging the Ethereum Exposure: Ether Futures Are Now Trading on CME

Only 39 contracts, equivalent to 1,950 ETH, were traded on CME on Sunday with the price of Ether back on the move up after the weekend sell-off.


Ether futures on derivatives exchange CME was finally launched late on Sunday, providing institutional investors the opportunity to gain exposure to the second-largest cryptocurrency.

“The main use of ETH futures will be cash and carry trades and futures curve arbitrage, i.e., making the ETH market more efficient, and profiting from it,” noted trader and economist Alex Kruger.

The CME listing allows institutional investors to diversify their crypto holdings and a way for investors to hedge their Ether exposure.

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, Ether futures are cash-settled, and their pricing is based on a CME reference rate that draws data from major crypto exchanges: Coinbase, Bitstamp, Gemini, Kraken, and itBit.

On CME, 1 Ether futures contract represents 50 ETH. For Bitcoin futures contracts, it has been five BTC.

Bitcoin PTSD?

Since the launch of bitcoin futures three years ago, the CME noted significant growth in their adoption, which propelled them to introduce Ether futures.

Since the beginning of 2020, 8,560 CME bitcoin futures contracts, equivalent to about 42,800 BTC, have traded on average per day. Institutional interest has also increased, with the number of large open interest holders reaching a record of 110 in December, while net shorts of 2,781 contracts last week were the smallest since late November.

However, some market participants like JP Morgan strategists see the price of ETH falling following the listing, much like when Bitcoin futures started trading.

But not everyone agrees as Lennai Lai, Director at crypto exchange OKEx notes that while the last bull market was mostly driven by retail on the spot and had a lack of institutional interest, this time, the market is “a lot more healthy now with ample liquidity,” and derivatives are already widely traded and there are lots of hedging option for traders.

Hedging the Grayscale's Risk

Ether futures, as per John Wu, president of AVA Lab, “will introduce new people and organizations to crypto and to the programmable smart contract side of the ecosystem, rather than just a store of value and digital gold.”

But investors have not been expecting huge volume right off the bat, and that’s exactly what happened as only 39 contracts, equivalent to 1,950 ETH, were traded yesterday. However, it was a weekend busy with the Superbowl.

On Friday, Ether made a new all-time high of around $1,765. Over the weekend, the price of Ether dropped under $1,500 and is currently trading around $1,640.

According to Kruger, “CME futures will allow parties that at present have difficulties accessing ETH markets to hedge Grayscale's ETHE risk, driving increased ETHE institutional demand, thus increasing spot demand and compressing the ETHE premium.”

Last week, Grayscale bought 105.59k ETH that brought its Ether holdings to 3.04 million ETH. ETHE is currently trading at a premium of 14.45%.

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