Daily Management Review

Ether’s Chance To More Out Of Bitcoin's Shadow With Futures Launch At CME


Ether’s Chance To More Out Of Bitcoin's Shadow With Futures Launch At CME
With investors seeking to take advantage of the increasing institutional interest in the evolving asset class of crypto currencies, a futures derivative of ether, the second largest crypto currency in terms of market capitalization and daily volume in the world, was launched on derivatives exchange CME.
For long ether has been in the shadow of bitcoin and is the currency that is used for transactions on the ethereum blockchain. The terms ether and ethereum have become interchangeable in the crypto world.
Over time, ethereum has come out to be identified as the leading financial infrastructure even as bitcoin is the preferred store of value in the digital ecosystem. According to digital asset manager GrayScale’s latest report, ether is used for settling more than $12 billion in daily transactions.
With the listing of the crypto currency at the CME, investors would be allowed to diversify crypto holdings outside of bitcoin. it also offers investors an avenue to hedge their ethereum exposure by opening up the market where investors can readily express bearish positions on the asset.
The ether futures will be cash-settled and its pricing will be based on a CME reference rate which in turn is based on data from the major crypto currency exchanges of the world - Bitstamp, Coinbase, Gemini, itBit, and Kraken. Bitcoin future was launched in 2017.
While not expecting transactions of huge volumes for ether as had happened in the case of the launch of bitcoin futures just over three years ago, investors will see the listing enabling the crypto currency becoming popular as an easy way to get access to another crypto-based network, according to John Wu, president of AVA Labs, an open-source platform for creating financial applications using blockchain technology.
“This will introduce new people and organizations to crypto and to the programmable smart contract side of the ecosystem, rather than just a store of value and digital gold,” Wu added.
Smart contracts are self-executing transactions.
On Friday last week, ethereum touched a record high of $1,764.55 just prior to its first listing which in turn, according to data tracker CoinGecko.com, helped ion increasing the crypto sector’s market cap to about $1.2 trillion.
There has been significant growth in their adoption of bitcoin from broad range of participants, including institutional investors since the crypto currency was listed in the form of bitcoin futures three years ago, the CME has noted.
The CME said in a statement that on average per day, a total of 8,560 CME bitcoin futures contracts which amounted to about 42,800 bitcoins were traded since the beginning of 2020. Additionally, the number of large open interest holders at the exchange reached a record of 110 in December which underscored the increase in institutional interest.
A fall in the price of the underlying currency could happen after the ether futures’ listing, said JP Morgan in a research note. The new contracts will enable holders of physical ethereum to hedge their exposure.
However according to a report on institutional flows from digital currency manager CoinShares, in January alone, investing cash into ethereum funds and products had already started as global investors poured in $56.1 million in inflows in the crypto currency.