With ETH Futures incoming, I felt the need to look back on the BTC Futures launch in December 2017 and review my expectations.
Bitcoin Futures in 2017
The introduction of cash-settled Bitcoin Futures trading by CME, the world’s largest financial derivatives exchange on Dec. 17, 2017, marked the end of the rally and the beginning of an infamous crash. On that day, the price reached a new all-time high and peaked short of $20,000 before plummeting.
It is known that the Trump administration approved the launch it in the hope that it would burst the inflating bubble of a “Tulipmania that refuses to die.” Christopher Giancarlo, former chairman of the U.S. Commodity Futures Trading Commission (CFTC), said in an interview with CoinDesk: “One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and the [National Economic Council] director at the time, Gary Cohn, believed that the launch of Bitcoin Futures would have the impact of popping the Bitcoin bubble. And it worked.” (1)
Advertised as a way to hedge risk exposure, CME Bitcoin Futures allows investors to bet on the future price of Bitcoin without buying or selling the underlying asset. It is difficult to evaluate the impact of a specific factor. Even though cash-settled futures do not influence the spot market directly, it is one of the countless factors that can drive behavior and price direction in ways that, as of now, are not always clear. (2)
An article from FRBSF Economic Letter states that the behavior of the spot market after the launch of BTC Futures is “consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.” The authors advance that the introduction of futures markets to other asset classes in the past has also caused a price decline. While cash-settled futures trading could offer a bullish outlook since it gives skeptics and large investors an incentive to enter the market, it provides better liquidity and could prove more attractive than trading actual Bitcoin. It also helps pessimistic investors bet against the price. To bet on an increase in price, you just need to buy Bitcoin, but without a market for derivatives, it is quite difficult to bet on the decline in Bitcoin price. (5)
Is this time different?
Today, ETH is the second-largest cryptocurrency by both market capitalization and daily volume and many of us are still reeling from the new ATH. Should we expect a plunge on Monday?
At the moment, optimists have free reign, but the introduction of shorting instruments usually leads to short-selling pressure. The Ethereum platform has strong fundamentals and many driving components. It is stronger than Bitcoin was in 2017. Furthermore, its price is not as influential for general market sentiment. Nevertheless, it may reduce spot demand and tamper FOMO a bit. While many new investors may panic sell, I am confident that this will be a wonderful year for ETH and do not expect a substantial impact.
With that said, we should still expect the short-selling pressure to kick in. Investors will try to short sell the top and they could succeed in beating the price down to the closest support level at $1420. It may bounce off this level a few times before falling back to around $1000.
In the mid-term, ETH will dust itself off, get back on its feet, and start running again, but we will probably need to be patient. I am looking forward to see what is going to happen. Are we in for a ride? What do you think? Hodl on to your ETH and breathe deeply.
Disclaimer: Not a financial advisor, nor a seer. This article only reflects my personal views on the matter, and I’m painfully aware that there are a myriad of factors that I did not (could not) take into account. My understanding is limited, the future open and the possibilities endless. Please, DYOR.