Here’s how Eth2, DeFi and Bitcoin price will impact Ethereum’s CME futures
Bitcoin futures (BTC) launched in December 2017 quickly failed to meet investors’ expectations, and although the CME BTC market had over $2.5 billion in open interest, the initial launch reinforced the idea that the launch of CME ETH futures this week will be just as bearish in the short term.
Prior to the introduction of the CME BTC futures contracts, Bitcoin was already up 1,900% this year, which some analysts attribute to the anticipation of regulated futures.
Now that CME ETH futures are in effect, investors are watching closely to see if the Ether (ETH) will experience a similar situation, as it has already gained 600% over the past year.
To date, it is impossible to assess how Bitcoin would have fared without the presence of CME and CBOE futures contracts. Nevertheless, operators are still inclined to attribute the 70% drop in the BTC price that occurred in the first three months after launch to the introduction of CME.
An analysis of the supply of commodity and currency contracts over the past two decades may give a better idea. Therefore, we will examine the historical index data of the original CME transaction data to see if there is a discernible price trend that occurs after the CME quotes.
Crude palm oil
Price of crude palm oil. Source: worldbank.org
When crude palm oil futures were introduced on the CME exchange in May 2010, they had no impact on the ongoing price recovery, as shown in the data above. Similar contracts on the New York Mercantile Exchange had been in existence for almost a decade, so this event may have had less impact, as both exchanges trade with institutional clients.
Following the CME’s launch, palm oil prices were able to rise due to a number of factors, including a 23% increase for WTI over the next five months.
Victory for South Korea
The future won by South Korea was cited in a similar tone in September 2006, and in this case the launch had an immediate effect on the price.
Spot rate of the South Korean Won/USD. Source: TradingView
Despite the lack of a futures contract, non-deliverable futures (NDFs) existed for the South Korean winner prior to listing on the CME. These NDF contracts are generally traded over-the-counter (OTC) and are rarely traded between investors. This means that more institutions are involved in the listed futures contract.
Again, it is not possible to ascertain whether the introduction of the futures contract had a direct effect on the price. It is possible that the devaluation of South Korea followed the trend of the emerging or Asian economies. Therefore, it seems far-fetched to relate this initiative to the introduction of CME futures.
How did the goods fare?
Ether and bitcoin are generally considered rare digital products, so it makes sense to compare them to other previous MEC launches.
Returning to commodities, the widely used diammonium phosphate (DAP) futures contract was introduced at the CME in June 2004.
Spot price of ammonium phosphate (DAP). Source: worldbank.org
Prior to the creation of CME, the Chicago Board of Trade (CBOT) had held these contracts since 1991. Nevertheless, there is possible evidence of price dumping prior to the IPO. However, for those analyzing the broader time horizon, the IPO itself appears to be a price catalyst rather than a negative element.
Future of South African coal
South African coal spot price. Source: worldbank.org
Coal futures trading started on the CME in July 2001 and, unlike the examples mentioned above, no proxies were listed on other exchanges. As with Bitcoin, there was a 50% jump in a year and a half before it started.
The result resembles a bitcoin listing, as the commodity fell 33% in the next 12 months.
In summary, there is no fixed trend that can predict the performance of assets after a WEC listing. Many historical events have succeeded each other in the listing and no particular pattern has been found.
Not all futures contracts offer sufficient liquidity, and the exclusion of the CBOE bitcoin futures contracts proves this.
At this stage, it is safe to say that the future price of Ether will depend on a number of factors, including the performance of Eth2 and its crucial role in the DeFi sector.
The views and opinions expressed in this document are solely those of the author and do not necessarily reflect the views of Cointelegraph. There are risks associated with all investments and business transactions. You should do your own research when making decisions.
Frequently asked questions
How will Bitcoin futures affect the price?
All futures contracts derive their value from their respective underlying assets. The prices of Bitcoin futures contracts depend on the spot price of Bitcoin, and any movement in the spot price affects the spot price of Bitcoin. This dependence results in a synchronization of the prices of the two futures contracts, even though there is a difference between them.
Will bitcoin rise or fall by 2020?
By 2020, Bitcoin’s growth will be driven by institutional investment. Large hedge funds and publicly traded companies are driving this bull cycle, and they do not have the same reputational disadvantages as retail investors. Square and Paypal have recently added cryptocurrency to their offerings.
Will the price of Bitcoin rise?
Other analysts have predicted the price of bitcoin for 2021, saying it will exceed $50,000.
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