The CFTC or Commodity Futures Trading Commission of the United States wants to approve an Ether futures contract, provided it actually ticks all of the right boxes, according to one senior official.
CFTC allowed Bitcoin futures markets to launch
The Commodity Futures Trading Commission, the regulator also know as CFTC, which oversees the derivatives markets in the United States, already permitted Bitcoin futures markets to begin, with Cboe Global Exchange and CME Group offering cash-settled contracts somewhere at the end of 2017.
Right now, the regulator wants to oversee some similar product for Ether, which is the second-largest crypto by market cap in the world at the moment. The official said that he thinks that they can get comfortable with an Ether derivative being under their jurisdiction.
He said that a derivatives exchange comes to them and says that it wants to launch a particular product. If an exchange comes to them with a specific derivative which meets their requirements, he believes there is an excellent chance to self-certify it.
But, the CFTC is only going to respond to the specific application which is put in front of the regulator, instead of volunteer an opinion, according to the senior official. If it is proposed, and then approved, a regulated futures product is going to open up the Ether market to some large institutional investors.
John Todaro, who is the director of digital currency research at Tradeblock, a financial software provider, said that a lot of funds have mandates which don’t permit them to buy the digital currency underlying.
He also added that a CFTC-supervised futures market could also usher in confidence among the regulators like the Securities Exchange Commission or SEC, which could also pave the way for an ETF, which is an exchange-traded fund that brings additional liquidity to Ether.
If there is an increase in the institutional investment world, it will bolster the confidence of retail investors in Ether, according to him. The Bitcoin futures of Cboe and CME, when they launched for the first time, saw an immediate positive response, with a sufficient number of traders trying to buy the contracts of Cboe that the website of the firm crashed. The introduction of such futures contracts could also have contributed to the price skyrocketing of Bitcoin to its all-time high of almost $20,000.
The process of learning
The CFTC indicated that it has been looking at Ethereum in December for the first time when the regulator has published an RFI or Request for Input, in that way asking many questions about the second-largest crypto by market cap in the world, the market around it, as well as the underlying technology.
Such questions actually ranged from asking about the PoS or proof-of-stake to how Ether deposits can be audited. The agency also asked what effect the derivatives contracts’ introduction might have on crypto.
The senior economist with the CFTC Division of Market Oversight, named George Pullen, said that the RFI sought industry, as well as market input on the risks, mechanics, as well as use cases for Ether.
The CFTC has been looking to contrast Ether with Bitcoin, according to Pullen, adding that after their initial public white papers, primers, on virtual currencies, smart contracts and Bitcoin, it has been clear that a one-size fits all approach to cryptocurrency has not been appropriate, and they had to know more.
The RFI of CFTC is going to help the regulator to comprehend the range of problems that could appear around the space of Ether, and develop some better relationships with the crypto community at large, Pullen added.
The question is still not resolved officially
Additionally to giving an investor the needed access to a new derivatives product, approving the futures contract of Ether, may cement the regulatory authority of CFTC over the underlying spot market.
Notably, one digital futures and assets trading platform called ErisX believes that regulating a futures contract on Ethereum is going to grant the CFTC some additional oversight on the Ethereum sports market.
The CEO of the exchange named Thomas Chippas said that a futures contract which includes a settlement price set by a physically settled cash market in the United States could improve the capacity of CFTC to monitor or oversee the cash market for manipulation and fraud properly.
The chief policy officer of the Chamber of Digital Commerce, which is a D.C. –based blockchain advocacy group, named Amy Davine Kim, said that the regulator has “after-the-fact” enforcement jurisdiction over the crypto spot markets, when it comes to manipulation and fraud, but there isn’t jurisdiction over exchanges only conducting spot transactions.
Furthermore, anything that isn’t security is often broadly defined as a commodity, according to Amy.
The questions about Ether and whether it is a security or not, are still not resolved officially; however, the officials at the SEC appear to believe it is not. The director of corporate finance of the agency, named William Hinman, said that he does not see Ether as a security.
Termine explained that the introduction of a futures contract is going to implicate the jurisdiction of CFTC beyond anti-fraud, as well as manipulation provisions. The deal is going to trade on a CFTC-regulated futures exchange, which means that it is going to be the subject to the direct oversight of the regulator.
Termine concluded that the implications for the broader community are going to enhance the CFTC oversight over, but potentially a legitimization of the crypto.