CME Exchange Announces Ethereum Product Allowing Crypto Shorts and Hedgers Efficient Exposure

Written by Dana Sanchez
CME Exchange Announces Ethereum Product Allowing Crypto Shorts and Hedgers Efficient Exposure. Photo: Pexels

Ethereum futures will be listed on the Chicago Mercantile Exchange starting Feb. 8, 2021, pending regulatory approval, with new contracts settled in cash, meaning ethereum will never actually change hands.

The move is based on client demand, CME Group said in a press release. The world’s largest financial derivatives exchange, CME Group trades in asset classes that include agricultural products, currencies, energy, interest rates, metals, and stock indexes. The group consists of the Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange and The Commodity Exchange.

Instead of holding ethereum, sellers get the dollar equivalent of the price of ethereum, allowing institutional investors to get skin in the game without worrying about custody, wallets, or even Web3, Decrypt reported. 

While bitcoin is blowing past one all-time-high after another, ethereum –the second-largest cryptocurrency –is also gaining ground.

On Thursday, Dec. 17, 2020, ether prices jumped to $674.84 per unit with a market cap of around $72.45 billion, according to Coindesk data.

CME introduced bitcoin futures trading on Dec. 17, 2017, coinciding with the 2017 bull run, reported. From Oct. 31, 2017, when CME made the announcement, to Dec. 17, 2017, when bitcoin derivatives trading became available, bitcoin’s market cap more than tripled, going from $106 million to $332 million, according to Decrypt. Bitcoin subsequently crashed to $3,800 — it’s one-year low — in March 2020 when the Nasdaq, Dow Jones and S&P 500 fell to their one-year lows, pushed down by the coronavirus pandemic.

Ethereum proponent Ryan Sean Adams tweeted the news to his 38,000 Twitter followers.

“ETH futures on the CME,” Adams said. “Floodgates are open. The largest derivatives exchange in the world just announced ETH futures on Feb 8. The world’s largest institutions will have a regulated way to buy ETH just in time for the bull run. Next is all-time high. Then we slay 10k.”

Options and futures are both financial products investors can use to make money or to hedge current investments. Both allow an investor to buy at a specific price by a specific date. However, the markets for these two products are very different in how they work and how risky they are to the investor.

“Based on increasing client demand and robust growth in our bitcoin futures and options markets, we believe the addition of ether futures will provide our clients with a valuable tool to trade and hedge this growing cryptocurrency,” said Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products, in a press release.

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futures contract requires a buyer to buy shares — and a seller to sell them– on a specific future date unless the holder’s position is closed before the expiration. By contrast, an options contract gives an investor the right, but not the obligation, to buy or sell shares at a specific price at any time, as long as the contract is in effect, according to Investopedia.

Bitcoin futures have allowed investors to gain exposure to bitcoin without having to hold the underlying cryptocurrency. Like a futures contract for a commodity or stock index, bitcoin futures allow investors to speculate on the future price of bitcoin.

“Ethereum is the second-largest cryptocurrency by both market capitalization and daily volume,” McCourt said in the press release. “The introduction of listed ether futures to our time-tested, regulated CME Group derivatives marketplace will help to create a forward curve so ethereum market participants can better manage price risk.”