Chicago-based commodity giants Cboe and CME Group are researching the Ethereum cryptocurrency with a market value of $ 49.6 billion in a number of ways. The problem is, US regulatory uncertainty prevented them from taking a decisive step until last week.
While the UK is already trading Ethereum futures contracts, which allow owners to bet for and against the cryptocurrency, doubts have been whether the US Securities and Exchange Commission would classify Ethereum as a security, both for exchanges and for many others in the US are an industry concern.
Both Cboe and CME Group have been trading Bitcoin futures since last year, following the guidelines that categorized Bitcoin as a commodity and left it straight into the domain of the Chicago giants. But with the clear chance that ether, bought early on by a relatively small group, could be seen as collateral, the companies were alongside countless others slowly building related products in the background, waiting for additional clarity.
Then, on the stage last week, SEC Director William Hinman spoke ten magic words that brought that clarity and aroused much of the cryptocurrency world: “CCurrent offers and sales of Ether are not securities transactions. “
Cboe President Chris Concannon was on a flight from Chicago when he heard the news and told the story Forbes The first thing he did was call his communications director to prepare for a flood of media inquiries. The moment he and his team had been waiting for had finally arrived and it was time to act.
“We have been thinking about futures on Ethereum for a while,” Concannon said Forbes. “This makes it clear that Ethereum may be a security, and it certainly paves the way for starting a future on Ether.”
While Concannon has been unable to speak publicly about whether the $ 15.6 billion Cboe is actively preparing for the launch of Ethereum futures, he says the exchange has wanted to do so since cryptocurrency research began.
To accelerate this process, Cboe, the largest options and futures exchange in the US with 22.95% of the market share, entered into an exclusive partnership with the New York-based Gemini Trust Company, led by Tyler and Cameron Winklevoss, last year will. Using Gemini’s bitcoin market data for bitcoin derivatives and indices, Cboe launched the first bitcoin futures contract (XBT) in the U.S. in December 2017 and since then has 680,000 contracts with a face value of $ 6.85 billion, according to company documents. Dollars traded.
The justification for the company’s entry into Bitcoin comes from a decision by the Commodity Futures Trading Commission (CFTC) in 2015, which officially recognized the cryptocurrency, which does not rely on a central authority – and any copy or “fork” their code – as a commodity. But Ethereum, which began selling part of its cryptocurrency before launch in 2014, has remained in a gray area as many skeptics say the cryptocurrency is more centralized than some would admit.
While uncertainty has prevented regulated US companies from offering Ethereum futures, Cboe partner Gemini added Ethereum to its trading platform in 2016 and has been running a daily Ether auction at 4:00 p.m. ET since last July. Data from that auction would play a crucial role in the pricing of an Ethereum futures contract that Cboe could eventually bring to market, Concannon said.
In fact, it is the Cboe partnership with Gemini that Concannon believes could speed its company’s time to market if it ever decides to launch any number of cryptocurrency futures. In addition to Bitcoin and Ethereum, Gemini added last month Support for Zcash, Litecoin, and Bitcoin Cash, all of which are bitcoins.
“This partnership has been structured so that we can introduce additional products in different currencies and literally use the same structure,” said Concannon. “So we don’t have to do anything unique. It just follows in the same footsteps as the Bitcoin future. “
A week after Cboe launched the very first regulated US Bitcoin futures, the other Chicago commodity giants CME Group followed suit and began paving their own way towards a possible launch of Ethereum futures.
Unlike Cboe, which quickly got to market by partnering with Gemini, CME Group has worked with UK-based Crypto Facilities to create their own bitcoin indices. Called the CME CF Bitcoin Reference Rate and CME CF Bitcoin Real Time Index, the increasingly controversial indices, were introduced in November 2016 and generate a Bitcoin price based on data contributed by participating exchanges.
Just over a year after the indices were launched, the CME Group initiated its own Bitcoin futures contracts (BTC) based on these indices. For the past three months, BTC futures contracts have traded an average of $ 130 million in nominal volume per day, according to company data.
While CME Group’s global head of equity products Tim McCourt said Forbes The exchange currently has no plans to launch Ethereum futures, a very well-known playbook like Bitcoin has already developed. Just last month, CME Group announced that it had partnered with Crypto Facilities, the company that helped it with Bitcoin futures, and launched an Ether-Dollar reference rate and real-time index.
Launched in phases, the index became a full “industrial” service earlier this month, and while the number of subscribers is not disclosed, a spokesman for CME Group told Forbes that the company’s Ether landing page has been running since launch Has been visited 5,200 times. McCourt says the CME Group measures the interest of existing market participants in the index and could build any number of services depending on demand.
“Just as the Bitcoin future was designed and implemented in response to customer demand,” said McCourt, “will any further product development, be it ether or other tokens, crypto or digital assets.”
Despite the CME Group’s refusal to track its Bitcoin futures with an Ethereum futures product, a closer look at the exchange’s past work with Crypto Facilities provides some hard evidence of what this “customer demand” might look like.
Long before the CME Group launched Bitcoin futures, its partner, Crypto Facilities, had started offering the contracts and is continuing to expand their related services. The London-based startup, founded in 2015, is years ahead of the curve in the field of cryptocurrency futures. Under the supervision of the less stringent UK regulator, the Financial Conduct Authority (FCA), Crypto Facilities had started trading XRP futures back in October 2016, and last month, just a week before the CME Group released its ether indices, Crypto Facilities launched the first regulated Ethereum futures using the same indices.
In the short time since these Ethereum futures were launched, they have grown to a tenth of the total, and company founder and CEO Timo Schlaefer expects a transaction volume of $ 150 million this quarter alone. Monthly XRP volume is now about $ 125 million compared to $ 30 million in February, he said, and total futures trading volume increased 84% in Q1 2018 compared to Q4 2017, he added.
“We see a strong demand for reliable and trustworthy price points for the top cryptocurrencies,” said Schlaefer.
But of course, in the emerging world of cryptocurrency futures, not all is beneficial. Aside from growing concerns that the ability to short Bitcoin contributed to the cryptocurrency’s price drop from $ 19,000 last year to $ 6,420 today, there are growing concerns about even more malicious tampering.
Last week, the CFTC requested data from several exchanges related to the CME CF Bitcoin reference rate. Despite a number of safeguards for the benchmark rate, including a volume-weighted median of the data and discarding outlier data points, concerns remain that the largely unregulated nature of the underlying exchanges providing the data is a potential weakness in the system.
To address these and other concerns, Crypto Facilities hired Sui Chung, former CEO of E., last monthuromoney institutional investorto monitor the index and price product business. Acknowledging the concerns, Chung detailed the cryptocurrency futures weighting process in an email to Forbes, and stood by the data:
“We are constantly reviewing the acceptance and liquidity of tokens to understand whether the market requires it and we can achieve reliable, trustworthy and robust price points.”