Regulated ETH Futures? Not So Fast

Noelle Acheson is a veteran of company analysis and CoinDesk’s Director of Research. The opinions expressed in this article are the author’s own.

The following article originally appeared in Institutional Crypto by CoinDesk, a weekly newsletter focused on institutional investment in crypto assets. Sign up for free here.

Earlier this month, Heath Tarbert – the new Chairman of the U.S. Commodity Futures Trading Commission (CFTC) – declared that ether, the token of the ethereum blockchain, was a commodity.

This is s significant statement that comes from the regulator of one of the largest derivatives markets in the world. Why? Because it opens the door to the possibility of regulated ether derivatives in the near future. The chairman was even more specific: “I’d say it is likely that you would see a futures contract in the next six months to a year.”

The market got excited because this would enhance the token’s appeal to institutional investors. Derivatives enable hedging, which is a significant part of portfolio management and a solid support for long positions. A lively derivatives market, the reasoning goes, will encourage more investment, which will boost the price, which will encourage more investment, and so on.

Yet, with respect, I believe the chairman is mistaken. We will not see ether futures in significant volume on a regulated U.S. exchange any time soon. If ever.

Reputation risk

Although it’s not just about the lack of demand, let’s look at that first.

Ether futures currently trade on exchanges based outside the U.S., but volumes have been thin relative to the spot market. On BitMEX, Huobi and Deribit, three of the largest crypto platforms that offer ether futures, the average 24-hour volume is less than 10% that of bitcoin, while the equivalent ratio in the spot market is almost 25%.

The difference could be due to ethereum’s relative youth, and the gap could close as the network matures. Or it could be that bitcoin…

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