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To take away
- The CFTC is willing to let an ether futures contract enter the market after soliciting market feedback last year
- Futures contract could bring new institutional funding to crypto-space
- This, in turn, could reassure retailers looking at cryptocurrency
- Futures contracts could also enhance the CFTC's ether jurisdiction, which is currently limited to enforcement actions.
The US Commodity Futures Trading Commission (CFTC) is willing to approve a futures contract on Ether – provided it checks all the appropriate boxes, said a senior official.
The CFTC, which oversees the derivatives markets in the United States, has already allowed the launch of bitcoin futures. CME Group and Cboe Global Exchange both offer cash-settled contracts at the end of 2017. The regulator is now ready to monitor a similar product. for the ether, currently the second largest cryptocurrency in the world by market capitalization, said the official.
"I think we can accept that an ether derivative is under our jurisdiction," said the person, who did not want to be identified because the regulator usually does not make it public. decision to adopt new products.
"We are not making bold statements, we are reviewing the applications before us," said the official, explaining:
"A derivatives exchange is coming in and saying," we want to launch this particular product. "… they've offered us a derivative product that meets our requirements, I think there's a good chance it's [allowed to be] self-certified by us. "
However, the CFTC would only respond to a specific request to the regulator instead of voluntarily giving its opinion, the person said.
If it is proposed and approved, a regulated futures product would open the ether market to a broad institutional investment.
"Many funds have mandates that do not allow them to buy the underlying digital currency," said John Todaro, director of digital currency research at Tradeblock financial software provider. In addition, a futures contract settled in cash, paid in fiat rather than in underlying crypto, would allow hedge funds and others "to expose to the ether without worrying about the conservation (bottleneck of institutional investments), "he said. .
In the long run, added Todaro Todo, a futures market supervised by the CFTC "could build trust between regulators such as the SEC [Securities and Exchange Commission] that could pave the way for an ETF, "an exchange-traded fund providing additional liquidity to the ether.
An increase in institutional investment would in turn strengthen the confidence of retail investors in the Aether, Todaro said.
At their first launch, CME and Cboe's bitcoin futures sparked an immediate positive reaction. A sufficient number of traders tried to buy Cboe's contracts for the company's website to collapse. The introduction of these futures contracts may have also contributed to soaring bitcoin prices, which reached its all-time high of almost $ 20,000.
Admittedly, some have argued that futures contracts could also have hurt the price of bitcoin, although Todaro said that it was more likely that the price of bitcoin had already peaked and that the approval Futures contracts coincided with this moment.
Learning process
The CFTC first indicated that it was examining Ethereum in December when the regulator issued a "Request for Input" (RFI) asking a number of questions about the world's second largest cryptocurrency by capitalization. market, the surrounding market and the underlying technology.
These questions ranged from the question of evidence of participation (the consensual mechanism that Ethereum would normally adopt to replace Bitcoin mining) to the way in which the ether deposits could be audited.
The agency explicitly asked what impact the introduction of derivative contracts could have on cryptocurrency.
George Pullen, Senior Economist at CFTC's Market Surveillance Division, told CoinDesk at the end of March that the RFI was seeking industry and market information on the risks, mechanisms and case of use of the ether.
In particular, the CFTC sought to contrast the ether with bitcoin, he explained, explaining:
"After our initial public white papers on virtual currencies, bitcoins and smart contracts, it was clear that a unique approach to cryptography was not appropriate and we needed to know more."
The CFTC's RFI will help the regulator understand "the range of problems that may exist" around the Ethernet space, as well as build better relationships with the cryptographic community as a whole. he adds.
"It is extremely important for us to raise awareness in order to understand the diversity of technologies, markets and differences within the community. if we just listen to our own voices inside the building, the strongest voices in the business world or just the voices in the sector, we risk missing the bigger picture, "Pullen explained. the time.
A total of 35 comments were submitted to the CFTC's request for information by professional associations such as the Digital Chamber of Commerce, the Coin Center think tank, Blockchains LLC and Circle startups, exchanges such as Coinbase and the creator self-proclaimed Bitcoin Craig Wright, among others.
The CFTC, or at least its president, J. Christopher Giancarlo, is already very popular in the community, which nicknamed it "Crypto Dad" after demanding a light regulation around the space.
Takeover?
In addition to giving investors access to a new derivative product, the approval of a futures contract on ether can also strengthen the regulator of the CFTC in the underlying spot market.
ErisX, an asset trading and futures trading platform (which wants to offer bitcoin, bitcoin cash, litecoin and ethereum futures contracts when its derivatives clearing agent license is approved), believes that the regulation of a Ethereum futures contract would give the CFTC additional control over the Ethereum cash market.
Thomas Chippas, President and Chief Executive Officer of the Exchange, wrote in his response to the request for information that a futures contract involving "a settlement price set by a physically settled cash market" in the United States. United could improve the "ability of the CFTC to properly monitor or monitor the spot market." fraud and manipulation. "ErisX declined to comment on this article.
The CFTC probably already has some jurisdiction over the liquid ether market, said several CoinDesk lawyers. However, this authority is limited.
Anne Termine, who heads Covington & Burling LLP's Futures and Derivatives Practice Group and was previously Chief Prosecutor with the CFTC's Division of Enforcement, told CoinDesk that the regulator had already made it clear that cryptocurrencies were commodities.
"As such, the CFTC has limited regulatory oversight over cryptocurrency spot markets, namely the ability to take enforcement action whenever fraud or tampering occurs in these markets. cash, "said Termine.
Amy Davine Kim, chief policy officer at the Digital Commerce Chamber, a blockchain defense group based in Washington, said the regulator had after-the-fact jurisdiction to enforce the spot-code cryptographic market laws in fraud or manipulation, but no jurisdiction. on the exchanges simply carry out cash transactions.
Moreover, anything that is not security is usually defined as a commodity, she said.
The question of whether ether is a security has not been formally resolved, but SEC officials seem to believe that this is not the case. William Hinman, the agency's chief financial officer, said at a conference in 2018 that he did not consider the ether a safe haven.
In March, SEC chairman Jay Clayton apparently confirmed his remarks, saying that he subscribed to Hinman 's analysis that a cryptographic asset might not be a security, although it was not. he did not specifically name Ethereum.
The introduction of a "futures contract" would imply the CFTC's competence beyond the anti-fraud and manipulation provisions, "explained Termine. The contract should be traded on a CFTC regulated futures market, which means that it would be subject to direct oversight by the regulator.
Ends concluded:
"The consequences for the community at large would be increased surveillance of the CFTC on [ether] but potentially a legitimization of cryptocurrency. "
Ether image via Shutterstock
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