Ethereum Futures Could Be a Double-Edged Sword for Price

With so much attention being placed on the advent of a bitcoin ETF, it’s easy to overlook another impactful product could be making its way into the cryptocurrency investment community soon — Ether futures. The CBOE, which alongside the CME was one of the two Chicago-based exchanges to introduce bitcoin futures, is pushing for a derivatives product tied to the second biggest cryptocurrency, Ethereum (ETH).

The ETH price has been in the doldrums and has shaved 79% off its value since its January 2018 peak. (If you ask blockchain veterans like Joseph Lubin, it’s not a true reflection of the frenetic activity that’s taking place on the network, such as gaming apps, which he expects is only going to ramp up between now and the end of the year.)

Source: Trading View

Double-Edged Sword

What Ethereum might need is a new product that would give investors the ability to trade ETH without owning the underlying asset, and there could be one such product right around the corner. The CBOE is targeting year-end 2018 for Ether futures, with the required regulatory approvals, tied to Gemini exchange’s market. Institutional investors would likely be the ones to pile on, especially since getting comfortable with bitcoin futures. Meanwhile, Vitalik Buterin has said that an institutional product could provide a short-term pump in the price even if it does nothing for adoption, speaking about an ETH ETF.

But this feature, the ability to bet on the decline of a cryptocurrency that has been a target of bears, could do more harm to ETH than good, that is if you ask influential market strategist Thomas Lee of Fundstrat. Consider the price of bitcoin, which Lee has a bullish price outlook on of approximately $20,000 by year-end. The bitcoin futures product was the catalyst to send the bitcoin price to its peak of more than $19,000 last year, but the bears have also been heavily shorting BTC that has been influencing the bitcoin price year-to-date.

CoinSquare’s Lennon Sweeting told MarketWatch in recent days that the run-up in the bitcoin price to above $7,000 was a result of short-covering, and that “shorts are still at elevated levels,” pointing to the $6,500 level as “solid support.” Perhaps if Ethereum shouldered some of the crypto bear volumes, it would make bitcoin less of a target.

Indeed, Fundstrat’s Lee told Business Insider that while Ether futures stand to hurt Ethereum, they could also provide the diversification that traders are hunting that could deliver relief to the bitcoin price.

“Since December of this year, if one was bearish on any aspect of crypto but did not want to own the underlying, they could short btc,” Lee said. “They can now short eth, means the net short on btc in futures would fall,” Lee told Business Insider. 

Should the CBOE succeed in its endeavor to bring an ETH futures contract to market, investors might begin to look toward an Ether ETF.

Featured image courtesy of Shutterstock.

Gerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.