Ethereum breaks through 1500, CME Ethereum futures will be launched, what is the impact? Are ETFs Promising?

On February 2, Beijing time, Ethereum broke through $1,500, reaching a peak of $1,541, an increase of nearly 100% within 30 days. Previously, Wu said that based on data analysis, there are four reasons why Ethereum broke new highs, and the benefits have not yet been exhausted. refer to:Data analysis: Four reasons why Ethereum finally broke new highs and the benefits 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. Commission on Trade (CFTC) regulatory review and approval phase.

According to CME’s official announcement, each contract will have 50 units of Ethereum, and this derivative product will be open for trading from Sunday to Friday from 5:00 p.m. to 4:00 p.m. “Building on the success of bitcoin futures and options, CME Group will add ether futures to its cryptocurrency risk management solution in February,” CME said.

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 point in time coincides with the launch of Bitcoin futures at the climax of the bull market in 2017. 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 the Bitcoin ETF is opened, it may bring trillions of dollars to the cryptocurrency market. But everyone knows that the application of Bitcoin ETF has been rejected time and time again.

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Re-examining Bitcoin futures, what enlightenment it can bring to Ethereum futures

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

What is unknown is that in fact it was not CME that launched Bitcoin futures first, 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 under the code "XBT". Bitcoin futures exchange, which marks the first time that the cryptocurrency market has officially entered Wall Street. What was quite interesting at the time was that CBOE specially set up a circuit breaker mechanism in response to fluctuations in the price of Bitcoin futures. As a result, the circuit breaker was triggered twice on the day of the transaction.

Since December 17, 2017, Bitcoin has been on a price decline for more than two years, and even fell below $4,000 in early 2020. From the current perspective, it is difficult to judge whether the launch of Bitcoin futures/options has helped the emergence of new highs for Bitcoin, or whether CME or CBOE has already foreseen the 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 the CME on the other side has survived until now. According to CryptoQuant data, as of January 29, 2021, the open interest of Bitcoin futures is $3.449 billion, and the open interest of Bitcoin futures on the CME Futures Exchange is $1.373 billion, nearly accounting for than 40%. It can be seen that Bitcoin futures indirectly increased the activity of Bitcoin transactions, attracting more capital attention and entering Bitcoin transactions.

In addition to the growth of market funds, price is another important factor. Bitcoin futures are settled in cash. Investors are equivalent to betting on the future price of Bitcoin, and the settlement will not involve Bitcoin spot. That is to say, bitcoin futures trading on CME does not involve bitcoin trading, and logically, no trading will affect the spot price.

But historical price trends suggest that CME Bitcoin futures will put pressure on spot prices. For example, during holidays, the CME Bitcoin futures market will be closed. If there is a sharp fluctuation during the market close, there will be a huge gap between the price before the market close and the price after the market open, that is, the CME Bitcoin futures will be closed. A price gap will form. Facts have shown that the huge gap that appears often has a high probability of causing the price of Bitcoin to cover. As Heath Tarbert, chairman and CEO of the U.S. 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 a good price discovery function. Investment firm Wilshire Phoenix has published a report on the subject of CME BTC futures, stating that “CME Bitcoin futures contribute more to price discovery than their associated spot markets.”

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Bitcoin ETF "Three Questions"-Ethereum ETF or Bitcoin ETF

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

ETF, exchange-traded funds, is equivalent to buying and selling the index it tracks, and can obtain basically the same income as the index. Ethereum ETF is an ETF that tracks the price of Ethereum, which is equivalent to holding Ethereum indirectly, and the income follows the rise and fall of Ethereum.

From a definition point of view, for ordinary investors in the currency circle, it is better to buy spot directly. The biggest significance of cryptocurrency ETFs is institutional investors. If the Bitcoin ETF is successfully listed and traded, then traditional funds and even pension insurance funds can match Bitcoin assets. Switching to an investor’s perspective, when an investor buys a traditional fund, the fund manager can use the money in the fund pool to invest and allocate Bitcoin. currency market attention.

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

The key to the refusal given by the SEC lies in three questions, first, how to assess the value of Bitcoin; second, how to avoid manipulation of Bitcoin prices; third, how to quickly buy and sell without affecting its price.

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

Here I will refer to CBOE's original text "Change to List and Trade Shares of SolidX Bitcoin Shares Issued by the VanEck SolidX Bitcoin Trust" on submitting a Bitcoin ETF application to the SEC 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 and then evaluating the value of blockchain technology-related applications under Bitcoin. Blockchain applications in use and under development include, but are not limited to, asset ownership transfers, secure time stamping, 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 is inherently related to blockchain applications, thereby linking the growth of bitcoin assets to the growth and use of blockchain applications.

2. Avoid price manipulation caused by leverage and related positions through major OTC over-the-counter transactions. The investment objective of the Bitcoin Trust is for the shares to mirror the performance of the price of Bitcoin, less the Trust's operating expenses. (The original shares refers to stocks, referring to the subject matter of listed transactions, here specifically refers to Bitcoin ETF) The trust company intends to achieve the goal of real price performance by trading most of its investment assets in the over-the-counter market for Bitcoin, and is not subject to leverage or related positions Restricts, but does not preclude, investment in bitcoins on domestic or international bitcoin exchanges, depending on the liquidity generated by the bitcoin exchange and other aspects at the sole discretion of the Company.

3. Conduct transactions on the OTC trading platform that constitutes the MVIS® Bitcoin OTC Index through negotiation between the two parties, and establish settlement-vs. and harvest-vs. transaction arrangements to minimize drastic price changes caused by large transactions risks of. Transaction costs in the OTC market are negotiable between parties, so some participants are willing to offer competitive prices for larger transaction volumes. Trust funds are expected to be more cost-effective in the over-the-counter market for large trades of $500,000 or more than on exchanges. When buying or selling bitcoins in the over-the-counter market, the Trust will consider various market factors, including the total dollar size of the transaction, the volume of bitcoins traded on each dollar-denominated bitcoin exchange in the previous 24 hours, the information provided by over-the-counter market participants. Available liquidity as well as bid and ask prices to ask OTC market participants for quotes, etc. There is also a proprietary database within the Trust, not shared with any OTC investors, which is used to identify potential counterparties to fulfill orders at the best available prices for OTC market participants.

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Ethereum occupies all the "time", can it be a war

Although both Bitcoin futures and Ethereum futures were launched in the bull market cycle, this bull market is quite different from the bubble bull market in 2017. The development of DeFi and the entry of institutions have allowed Ethereum to occupy the "time".

In 2020, DeFi, bred from the Ethereum ecosystem, has become the main theme of the hot market. According to qkl123 data, as of February 3, the locked-up amount of DeFi was 29.34 billion, which was only 17.201 billion at the beginning of the month. DeFi has demonstrated the 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.

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epilogue

If the Bitcoin ETF or Ethereum ETF is successfully launched, the door to the cryptocurrency market will be completely opened for investors in the traditional financial market. Although the current market environment is much better than in the past, it has not yet reached a mature stage. 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 look.