You have probably all heard about the opening of ETH futures contracts by CME and want to know more about what CME is? Well, that’s exactly what we’re going to talk about today!
What is CME?
The Chicago Mercantile Exchange, often abbreviated to CME, is an American stock exchange based in Chicago. Founded in 1898 as the Butter and Egg Board, the Chicago Mercantile Exchange (CME) opened on December 1, 1919 and is the oldest futures market in the world.
Today, the Chicago Mercantile Exchange (CME) is one of the two major U.S. futures markets along with the Chicago Board of Trade (CBOT).
What is Futures Trading?
Crypto futures are Derivative Products. Such products are a form of contract. They enable traders to determine upon the future price of an asset. Participants can either go long, therefore betting on a price advance, or go short if anticipating a drop. Traders going long agree to buy the asset on a specified date, and vice versa for short-sellers.
Why are we interested?
Well, because in 2017 the WEC listed a futures contract on Bitcoin for the first time. The result was a dramatic drop and a bear market that lasted a year.
This example, which was supposed to bring more institutional capital to the market, did not result in an appreciation of Bitcoin, at least not for a year.
Given the above experience, it is natural for the mainstream to be skeptical, causing the majority to wonder if the launch of the Ethereum Futures would result in a similar trend as that of Bitcoin Futures in 2017.
The ETH case
ETH futures have been available on the CME platform since Monday, February 8th, 2020 and the least we can say is that there hasn’t been any selling pressure since then.
Indeed, ETH was trading on Monday around $1600 and has since reached a new ATH at $1837 before retracing and ETH is now trading around $1800.
How could this affect the price?
Many would expect a decline, as was the case with the introduction of BTC futures in 2017, but that would be an overly simplistic shortcut.
Indeed, at the time, the price of BTC, according to the logarithmic S2F models, was much more overextended than it is today and institutional participation in the market was still relatively low.
The fall of Bitcoin was only a result of the cyclical evolution of the financial markets, certainly much more important than for the classical market.
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What can we expect now?
Well the first thing we can see is that the trading volume has not been huge for the last 3 days with a total of 980 contracts traded for ETH compared to the 43834 contracts traded for BTC.
This is not necessarily surprising because the institutional investors, for whom the CME platform is intended in particular, are mostly invested in BTC and not necessarily as much in ETH.
For those who are, there are other ways to expose themselves to cryptos, and with the improvement of custody solutions, sports buying is also a good option.
And for ETH as a whole?
The fundamentals remain good for ETH, stacking is increasing and ETH 2.0 is getting closer and closer!
How will the price of Ethereum develop from this point? It remains to be seen. One thing is for sure – at the time of writing of this article, ETH is trading at around $1,800 so we can safely say, at the moment, the speculative downtrend prior to the launch of ETH Futures remains a non concern.
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