Ethereum Gets Its Own Futures Contract as Institutional Appeal Grows
A U.K. startup has launched the world’s first Ethereum futures contract, offering investors new ways of accessing the digital currency market. The contract gives investors the opportunity to long or short ether prices without the underlying risks associated with cryptocurrency trading.
Ethereum Futures Have Arrived
London-based Crypto Facilities formally launched the new futures product on Friday. The contract will be tradable on a regulated exchange governed by the U.K. Financial Conduct Authority (FCA). The contract went live at 4 p.m. U.K. time.
In a statement, Crypto Facilities CEO Timo Schlaefer said regulated futures will bring more liquidity to Ethereum and potentially boost adoption in the wider market. The new contract will let investors “broaden investment opportunities and manage risks more effectively,” Schlaefer said.
Crypto Facilities already offers derivatives products with exposure to bitcoin and Ripple XRP.
Schlaefer added: “The Ethereum network is the pre-eminent blockchain for smart contracts, and we believe this new trading instrument will attract more investors and bring greater liquidity to the marketplace.”
Ethereum is the world’s second largest cryptocurrency by market cap. In addition to being a store of value and tradable currency, the Ethereum network has facilitated the launch of hundreds of initial coin offerings (ICOs).
On Saturday, ether was valued at $675 for a total market cap of $67 billion.
The Securitization of Cryptocurrency
Efforts to securitize cryptocurrency have intensified since the bull market began, with banks, fund managers and startups developing new ways to enhance institutional adoption.
Goldman Sachs shook up Wall Street earlier this month by confirming plans to launch its own bitcoin futures contract. The mega bank will serve in the capacity of market maker, focusing first on futures and non-deliverable forward products. Depending on consumer demand, this operation could expand into a full-fledged trading desk in the future.
CBOE is also in talks with federal securities regulators to allow for the development of bitcoin-based exchange traded-funds (ETFs). However, this would require amending an important rule set out in the 1934 Securities and Exchange Act.
However, not everybody is convinced that securitization of digital assets is a boon to long-term stability. A recent publication from the San Francisco Fed linked new innovations in securitization (i.e., bitcoin futures) to the rise and eventual crash of bitcoin prices.
Fed researchers compared the rise and fall of the subprime mortgage market to recent developments in bitcoin, arguing that subsequent crashes occurred only after short selling became common.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.