CRYPTO MOVERS AND PRICES
Crypto was broadly rallying this morning with Ethereum (ETH) continuing to set new record highs. DOGE is up 65% after Tesla CEO Elon Musk tweeted about the coin several times this morning.
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On Monday, CME Group will launch ETH Futures. Barring any last-minute regulatory interventions, the launch of the product represents a major milestone for ETH’s mainstreaming at a moment when the asset is setting new record price levels.
CME announced its intention to launch ETH futures in mid-December of last year. The US CFTC doesn’t approve or deny new futures contracts, instead “designated contract markets” are allowed to list futures contracts by “filing a written self-certification'' with the regulator.
The announcement of CME Group’s intention to list ETH futures was preceded by several instances of former CFTC Chairman Heath Tarbert seemingly endorsing the launch of a potential ETH futures product. In January 2020, when speaking to Bloomberg, he remarked, “[m]y guess is we're going to see Ether futures as well, and as things start to migrate into the commodities space, we'll see even more.”
In 2019, Tarbet also referred to ETH as a commodity, which would put the asset under the regulator’s purview. In May 2020, US-based ErisX, which holds the status of designated contract market, launched physically settled ETH futures. That contract, which has seen limited traction since launching, represents the first regulated ETH futures in the U.S.
According to preliminary specifications for CME’s ETH futures, margin requirements will sit at 50% of the notional value of 1 contract; BTC’s margin requirement is 37%. For comparison, CME’s Comex 100 Gold Futures expiring in March has a 5.9% requirement. CME launched a BTC futures product on December 18, 2017 and 2 days after it went live, the coin went on to make then-record highs of just under USD 20,000.
Conventional trading hours and high margin requirements have made CME’s BTC futures a relatively imperfect vehicle for exposure to an asset characterized by volatility and 24/7 trading. We expect CME’s ETH futures to offer similarly limited means of gaining exposure to ETH.
Considering the high margin requirements for the ETH product, the CME Group is taking a more conservative approach, compared to their BTC futures. This high margin requirement, which increases the capital a trader must essentially lock up in trading ETH futures versus deploying it elsewhere, will impact the product’s attractiveness.
Nevertheless, CME Group’s BTC futures have achieved traction and recorded USD 1.96 billion in open interest and 88.73 billion in volume in January. Considering the increasing interest in the broader crypto space, CME’s ETH futures have the potential to become a popular means for speculating on the coin among actors who are unable to access alternative crypto-native derivatives platforms.
We’re also surprised that the CME Group would reveal its intention to list the new product in the midst of a Presidential transition and overhaul of the CFTC in the United States. Still, the listing is a boost for the crypto space in general and ETH in particular.