Approaching February 8th, the day of the launch of Ethereum (ETH) futures on the CME Chicago Mercantile Exchange. Many are confident that this will push the price to new all-time highs.
Back late last year, CME Group, the world’s largest derivatives exchange, announced plans to launch Ethereum futures contracts for institutional traders. This will happen very soon, on February 8th.
Many analysts claim that this event is capable of pushing the ETH rate to new all-time highs. Such expectations warm up the market and provide support to the price in advance.
It should be remembered, however, that listing ETH on the CME alone cannot have any immediate effect on the price of a currency. Moreover, its rate may even fall. There are several reasons for this.
First, CME has not yet received official approval to launch Ether futures. The chances that this will happen on the day indicated by the management of the exchange are extremely low.
It should be borne in mind that on January 20, a new team of Joe Biden came to power in the United States. Internal castling and reshuffling can delay the permitting procedure.
Moreover, the possibility cannot be ruled out that such a permit will not be issued at all. As market participants fear, the former head of the Federal Reserve Janet Yellen as US Treasury Secretary may pursue a strict restrictive policy in relation to the cryptocurrency market.
Among other new appointments, the head of the Commodity Futures Trading Commission (CFTC) has also changed. Heath Tarbert, who took a friendly stance towards cryptocurrencies and ETH in particular, has already left this post. Chris Brummer is expected to become the new head of the Commission. It is possible that in an attempt to distance themselves from Trump’s previous policies, the new authorities will decide to reconsider their attitude towards ETH.
This is one of the possible reasons that could cause a currency correction.
Algorithm change – status change ETH?
In addition, the regulatory saga dragged on long before Biden’s new team came to power. As a reminder, back in May 2019, the CFTC announced its readiness to issue permission to launch ETH futures. After that, the Commission reminded about these intentions a couple of times.
In October 2019, CFTC head Tarbert announced that Ether is a commodity asset and falls under the jurisdiction of the CFTC.
Earlier, in 2018, the US Securities and Exchange Commission (SEC) also stated that it does not consider ETH to be a security. However, then this did not arouse much interest from market players. This was understandable, since at that time the influx of institutional investors into the crypto space was extremely scarce. In addition, the Ethereum market itself was significantly smaller than the Bitcoin market.
However, in November 2019, Tarbert acknowledged that switching to the Proof-of-stake (PoS) mining algorithm could affect the regulatory status of Ethereum. Engaging a staking mechanism has the potential to place an asset under securities law. Thus, the status of the altcoin may be in question after the official launch of the Ethereum 2.0 network and the transition to the PoS algorithm took place on December 1, 2020.
If ETH falls under the jurisdiction of the SEC, it will face new regulatory issues. Uncertainty about the legal status of a currency can also impede decision-making on futures.
Interest in bitcoin is higher
Finally, even the issuance of a CME permit will not result in immediate price increases. All this expectation is more like a story with a similar anticipation and launch of Bitcoin futures trading on the Bakkt exchange.
Back then, everyone was also expecting a surge in bitcoin prices, but in fact they received low trading volumes compared to other platforms. Note that ETH futures have already been launched on other platforms, including regulated ones, albeit in other jurisdictions. Accordingly, the market demand for this trading instrument may already be satisfied.
Of course, CME is able to create an important bridge between the crypto market and institutional investors from the United States. However, it must be admitted that now institutionalists are much more interested in bitcoin. According to CoinShares data, about 97% of such investments are still directed to Bitcoin.
Let’s also remember the launch of Bitcoin futures on CME in December 2017. At the start, trading volumes were extremely low. CME was inferior to other exchanges on a variety of trading indicators. Only in 2020 did she manage to break into a leadership position.
Meanwhile, no breakthrough changes are expected in the development of the Ethereum blockchain in the near future. So far, we can only observe the dissatisfaction of a number of ecosystem participants with unreasonably high fees for transactions on the network.
What’s most important to ETH
So the hype around ETH futures is pretty unfounded. As a result, this can only cause a price correction. In the meantime, in fact, the growth of Ethereum will depend primarily on the further success of blockchain developers and the development of the ETH ecosystem as a whole.
In this regard, one cannot fail to mention the decentralized finance industry, which continues to be a powerful driver for the Ethereum blockchain. However, there are also pitfalls here. As some point out, the continued record growth in DeFi-locked assets may be linked to the current rally in BTC and ETH prices. The price dynamics of the two major cryptocurrencies is driving up the value of locked assets in dollar terms.
An important aspect for the further development of the ETH ecosystem will be the solution to the issue of a new commission model. This will help increase the profitability and attractiveness of DeFi platforms for users and create conditions for stable growth of ETH.