Multiple firms have launched markets for leading cryptocurrency bitcoin, with CME and Cboe launching bitcoin futures back in December 2017.
2018 saw several crypto firms express an explicit interest in offering ethereum derivatives in the market. However, a number of market experts have said that chances of a regulatory approval remain as slim in 2019 as it was last year.
The CEO of LedgerX Paul Chou thinks that the odds of an ether derivative hitting the market this year are “50-50 at best.”
LedgerX reportedly has developed an ethereum option that is all set for trading but cannot be rolled out because the U.S. Commodity Futures Trading Commission (CFTC) hasn’t given it a regulatory go-ahead.
The CFTC provides regulatory oversight and jurisdiction over commodity and futures markets within the U.S. and published a “Request for Input” last December seeking information from the public and other market participants.
This information, the agency said, would help it have a better understanding of ethereum, including any risk potential of having derivatives markets in ether.
The regulator’s notice read:
“The RFI seeks to understand similarities and distinctions between certain virtual currencies, including here ether and bitcoin, as well as ether-specific opportunities, challenges, and risks.”
Multiple trading firms have ether futures ready
Apart from Chou’s LedgerX, several other firms across the market have or are developing plans for futures offerings tied to ether.
Among these firms are ErisX, Seed CX, and Cboe Global Markets. While the first two have expressed interest in launching ethereum derivative products, the Cboe already has bitcoin futures on the market and is waiting on a green light to launch ethereum futures.
While all these ether futures wait in the wings, the timeline of when any one of them gets approval remains unknown according to market experts.
For one, CFTC’s window of gathering public comments closes around mid-February. Only after this will the regulator hold its deliberations on whether ether futures are merited.
The question of Ethereum’s switch to proof of stake consensus algorithm
Jeff Bandman is a crypto consultant and at one point advised the CFTC on fintech. He says that the agency‘s failure to approve an ether derivative isn’t because they “hate on it.”
According to him, CFTC understands very well “what a proof of work network is,” which is not the case with Ethereum’s impending switch to a proof of stake mechanism. He adds that the PoS issue “raises new questions,” more specifically on what risks may be therein.
Ethereum (ETH) will eventually adopt PoS consensus mechanism where ETH holders will be required to ‘stake’ the coins as opposed to ‘mining’ that is used to secure the bitcoin network. The postponed Constantinople upgrade is one among several upgrades that will see Ethereum switch from PoW to PoS.
Nelson Rosario, a crypto attorney, told the Block that the switch has added “a lot of uncertainty,” with regulators seemingly unsure of exactly what or how the new system will impact on any approved futures product.
According to another undisclosed source that spoke to the publication, staking works similarly to a derivative product.
Thus, adding a futures product on top introduces a certain “level of complexity” that could see the underlying spot market face “too many different pressures,” affecting prices of ether itself.
It is these pressures that the CFTC’s RFI alluded to when seeking input on whether ether derivatives could “change or modify the incentive structures” underlying a PoS consensus model.
Chou concludes that the market might have to wait a bit longer, adding that an ETH futures contract for the market a ‘premature’ concept- just as bitcoin ETF proposals that came out in early 2017.
Several firms hold hope that the regulators will allow ether derivatives in 2019, although that remains uncertain.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.