Ethereum breaks through 1500 CME Ethereum futures will be launched online to affect whether the geometric ETF is promising

On February 2, Beijing time, Ethereum broke through $1,500, reaching a high of $1,541, and the increase in 30 days was close to 100%. Previously, Wu said that based on data analysis, there were four reasons why Ethereum broke a new high, and the positive factors have not yet been exhausted. Reference: Data Analysis: Four reasons why Ethereum finally broke a new high, and the positive factors have not yet been exhausted

The last good news is that the Chicago Mercantile Exchange (CME), the world's largest derivatives exchange, announced that it will launch Ethereum futures on February 8, 2021. The new contract will be settled in cash. The transaction is currently awaiting regulatory review and approval from the U.S. Commodity Futures Trading Commission (CFTC).

According to the official announcement of CME, each contract will have 50 units of Ethereum, and this derivative product will be open for trading from 5 pm to 4 pm from Sunday to Friday. The Chicago Mercantile Exchange said: "Building on the success of Bitcoin futures and options, the Chicago Mercantile Exchange Group will add Ethereum futures to its cryptocurrency risk management solutions in February."

At the end of 2020, the cryptocurrency market ushered in a bull market carnival, and now we are in a big bull market cycle. The launch of Ethereum futures at this time is quite coincidental with the launch of Bitcoin futures in 2017 when the bull market was at its peak. With the popularity of Bitcoin futures, many people believe that Bitcoin futures will become a powerful driving force for the advent of Bitcoin ETFs. Once Bitcoin ETFs are launched, they may bring trillions of dollars of funds to the cryptocurrency market. But as we all know, the application for Bitcoin ETFs has been rejected again and again.

Now that Ethereum futures are about to be launched, the launch of Ethereum ETF has become a new topic. The following will interpret the history of Bitcoin futures, Bitcoin ETF and market environment from three aspects.

Re-examining Bitcoin futures: what insights can it bring to Ethereum futures

On December 17, 2017, there were two historic events in the cryptocurrency market. One was the launch of Bitcoin futures by CME, and the other was that the trading price of BTC reached its historical high at the time. According to Binance data, the highest price of the day was 19798.68u, and some exchanges showed that BTC crossed the 20,000 mark.

What is not well known is that it was not CME that first launched Bitcoin futures, but its old rival CBOE. On December 10, 2017, a week before CME launched Bitcoin futures, CME's competitor, the Chicago Board Options Exchange (CBOE), officially launched Bitcoin futures trading with the code "XBT". The exchange was the first exchange in the world to launch Bitcoin futures, marking the first time that the cryptocurrency market has officially entered Wall Street. What was quite interesting at the time was that CBOE set up a circuit breaker mechanism specifically to deal with the price fluctuations of Bitcoin futures, and the circuit breaker was triggered twice on the trading day.

Since December 17, 2017, Bitcoin has been on a downward trend for more than two years, even falling below $4,000 in early 2020. From the current perspective, it is difficult to judge whether the launch of Bitcoin futures/options has contributed to the emergence of a new high for Bitcoin, or whether CME or CBOE has already foreseen a signal that the market is about to reverse.

In addition, it is regrettable that CBOE announced the suspension of Bitcoin futures contract trading in March 2019. But CME on the other hand has survived until now. According to CryptoQuant data, as of January 29, 2021, the open interest of Bitcoin futures in the market was $3.449 billion, and the CME Futures Exchange's Bitcoin futures position was $1.373 billion, accounting for nearly 40%. It can be seen that Bitcoin futures have indirectly raised the activity of Bitcoin trading, attracting more funds to pay attention to and enter Bitcoin trading.

In addition to the growth of market funds, price is another important factor. Bitcoin futures are settled in cash, and investors are betting on the future price of Bitcoin. The settlement does not involve the spot Bitcoin. In other words, Bitcoin futures trading on CME does not involve the buying and selling of Bitcoin. Logically, if there is no buying and selling, it will not affect the spot price.

However, historical price trends show that CME Bitcoin futures will put pressure on spot prices. For example, during holidays, CME Bitcoin futures will be closed. If there are sharp fluctuations during the holiday, there will be a huge gap between the price before the holiday and the price after the opening, which means that CME Bitcoin futures will form a price gap. Facts show that huge gaps are often likely to cause a rebound in Bitcoin prices. As Heath Tarbert, chairman and CEO of the Commodity Futures Trading Commission, once said: "Sometimes, the price of cattle is actually determined by the derivatives market."

In addition, some institutions believe that CME Bitcoin futures have good price discovery functions. Investment company Wilshire Phoenix once released a report on the topic of CME BTC futures, stating that "CME Bitcoin futures contribute more to price discovery than its related spot market."

Therefore, it is reasonable to believe that CME Bitcoin futures are an indirect factor in the direction and height of Bitcoin prices. Similarly, the launch of Ethereum futures will bring in funds from traditional investors, and the factors involved in price fluctuations will become more diverse and complex, but in essence, CME launched Ethereum futures because it saw that it could bring in lucrative transaction fees, and the demand for Ethereum futures also confirmed its value as an investment.

Bitcoin ETF "Three Problems" - Ethereum ETF may follow the footsteps of Bitcoin ETF

With the upcoming launch of Ethereum futures, many people hope that Ethereum ETF will become a breakthrough to pry open trillions of funds from the traditional market, but in fact it is difficult. Just as Bitcoin ETF has been rejected many times, the SEC will not easily open the door to Ethereum ETF in the short term.

ETF, exchange-traded funds, is equivalent to buying and selling the index it tracks, and can obtain returns that are basically consistent with the index. Ethereum ETF is an ETF that tracks the price of Ethereum, which is equivalent to indirectly holding Ethereum, and the returns follow the rise and fall of Ethereum.

From a definition point of view, for ordinary investors in the cryptocurrency circle, it is better to buy spot directly. The greatest significance of cryptocurrency ETFs is for institutional investors. If the Bitcoin ETF is successfully listed and traded, then traditional funds and even pension insurance funds can match Bitcoin assets. From the perspective of investors, investors buy a traditional fund, and fund managers can use the money in the fund pool to invest and allocate Bitcoin. This not only attracts more traditional fund funds to enter the market, but also amplifies the market attention to Bitcoin.

All this is still pretty good, but the SEC, as a regulatory agency, doesn't think so. If traditional funds, pension funds, etc. enter the market to invest in cryptocurrencies, if the cryptocurrency collapses or proves to be a bubble and there is a sudden and violent fluctuation, then the funds' money will be wasted. As a regulatory agency, this is absolutely not allowed. This is why the SEC is still cautious about Bitcoin, even though its market value has reached the top 10 global assets.

The key to the SEC's rejection lies in three issues: first, how to evaluate the value of Bitcoin; second, how to prevent the price of Bitcoin from being manipulated; and third, how to buy and sell quickly without affecting its price.

For the Ethereum ETF, how to answer these three questions well will be the key factor in whether it can take a historic step forward.

Here I will refer to the original text of CBOE's application to the SEC for Bitcoin ETF, "Change to List and Trade Shares of SolidX Bitcoin Shares Issued by the VanEck SolidX Bitcoin Trust", to interpret these three issues. Although the final result was a failure, I believe it made an indelible contribution to that historic step.

1. By evaluating the value of Bitcoin, we can evaluate the value of blockchain technology-related applications under Bitcoin. Blockchain applications currently in use and under development include but are not limited to asset ownership transfer, secure timestamps, forgery and fraud detection systems, secure document and contract signing, distributed cloud storage, and identity management. Value transfer is not the main purpose of blockchain applications, but the use of Bitcoin assets inherently involves blockchain applications, thus linking the growth of Bitcoin assets with the growth and use of blockchain applications.

Second, avoid price manipulation caused by leverage and related positions through major OTC transactions. The investment goal of the Bitcoin Trust is to let the shares reflect the performance of the Bitcoin price, minus the operating expenses of the trust. (The original shares are stocks, referring to the subject of listed transactions, and here specifically refers to the Bitcoin ETF) The trust company intends to achieve the goal of true price performance by trading Bitcoin in the OTC market for most of its investment assets, without leverage or related position restrictions, but does not exclude investment in Bitcoin on domestic or international Bitcoin exchanges, depending on the liquidity generated by Bitcoin exchanges and other aspects determined by the company at its own discretion.

3. Through negotiation between the two parties, transactions are conducted on the OTC trading platform that constitutes the MVIS® Bitcoin OTC Index, and delivery-for-delivery and collection-for-delivery trading arrangements are established to minimize the risk of drastic price changes caused by large transactions. The transaction costs in the OTC market are negotiable between the two parties, so some participants are willing to offer competitive prices for larger trading volumes. It is expected that the Trust Fund will have a cost advantage in conducting large transactions of US$500,000 or more in the OTC market rather than on exchanges. When buying and selling Bitcoin in the OTC market, the Trust Fund will consider various market factors, including the total dollar size of the transaction, the Bitcoin trading volume of various dollar-denominated Bitcoin exchanges in the previous 24 hours, the available liquidity provided by OTC market participants, and the bid and ask prices of OTC market participants. The Trust also has a proprietary database within the Trust that is not shared with any OTC investors to identify potential counterparties and complete orders for OTC market participants at the best available price.

CBOE has put forward its own opinions on answering the "three questions" for Bitcoin ETF, and I believe that the later Ethereum ETF can be inspired by it. However, the rejection of its application also shows that there are still many loopholes in the answer. How to quantify the value of Bitcoin's blockchain technology, how to deal with the gap between Bitcoin ETF on and off the market during holidays, Bitcoin forks, hacker attacks and other risks are still worthy of further consideration.

Ethereum has the best timing, can it win?

Although Bitcoin futures and Ethereum futures were launched during the bull market cycle, this bull market is very different from the bubble bull market in 2017. The development of DeFi and the entry of institutions have given Ethereum the best timing.

In 2020, DeFi, which was born from the Ethereum ecosystem, has become the hot theme of the market. According to qkl123 data, as of February 3, the DeFi locked amount was 29.34 billion, while it was only 17.201 billion at the beginning of the month. DeFi has shown its ability to grow wildly and has become the fastest growing ecosystem in the cryptocurrency market, with multiple tracks such as lending, insurance, savings, derivatives, oracles, and DEX. With the advancement of ETH 2.0 and the vigorous development of various DeFi tracks, the future of Ethereum is worth looking forward to.

In addition, the bull market in 2020 is called the institutional bull market, thanks to the layout or entry of many institutions such as Grayscale Fund, MircoStrategy, and PayPal into the cryptocurrency market, and Ethereum, second only to Bitcoin, has naturally become the object of capital favor. These institutions not only bring huge traditional funds to the cryptocurrency market, but also have reason to believe that they are optimistic about the value of investment currencies in the long term. It is believed that they will tend to hold positive opinions on the promotion of Bitcoin ETF or Ethereum ETF, and may use enough funds and resources to lobby the government.

Conclusion

If Bitcoin ETF or Ethereum ETF is successfully launched, the door to the cryptocurrency market will be completely opened to traditional financial market investors. Although the current market environment is much better than in the past, it is not yet mature. For regulatory agencies, once a precedent is set, the risks they face will be considerable. For ordinary investors, there is no need to expect too much and take a calm view. (Picture from Coinspeaker)