An eight-fold rally in ether last year to a record high could face potential turmoil from the upcoming launch of CME Group Inc. futures for the largest cryptocurrency after Bitcoin.
The contracts, slated to launch on February 8, commemorate 2017 when the launch of Bitcoin futures coincided with a peak in leading digital wealth before a spectacular bankruptcy. Analysis by the Federal Reserve Bank of San Francisco suggests the derivatives have opened the door for bearish investors.
The listing of Ether futures could also exhibit “negative price dynamics,” wrote Nikolaos Panigirtzoglou, global market strategist at JPMorgan Chase & Co., in a note on Tuesday. The initial volume is likely to be small, he added.
The ether has so far been unaffected. It climbed to an all-time high of around $ 1,563 on Wednesday, beating Bitcoin’s 26% increase in 2021. The token is popular for so-called decentralized financing, which bypass traditional intermediaries such as banks. As always with digital coins, speculators may also try to harness the momentum of ether for quick profits.
Ether may not suffer the same fate as Bitcoin in 2017, said Vijay Ayyar, head of Asia Pacific at Crypto Exchange Luno in Singapore.
“For all you know, the major players may be trying to get long-term exposure through futures because there is an institutional-grade product for that,” he said. “Smart traders switched to ether when Bitcoin topped around $ 40,000 and made more money.”
In the background, Ether could also be affected by advances in updating the connected Ethereum blockchain so that more transactions can be processed. The way in which the upgrade is carried out can limit the supply of tokens.
In the 2018 Federal Reserve Bank of San Francisco analysis, authors such as Galina Hale and Arvind Krishnamurthy wrote that Bitcoin’s rapid rise and subsequent decline after the introduction of futures “does not appear to be a coincidence,” adding, that the contracts “allowed pessimists to enter the market, which helped reverse Bitcoin price dynamics.”
Bitcoin surged to a record nearly $ 42,000 in early January but has declined by $ 5,000 since then. As of 2:15 p.m. in Tokyo, it rose 3% to $ 36,600. Ether was around $ 1,550.
The rise in prices and the growing profile of cryptocurrencies remain controversial. Some warn that digital coins are prone to mania and that investors can lose everything. Others are feeling a mature asset class that attracts long-term investors looking to hedge a variety of risks.
Ether futures are expected next week pending regulatory approval, according to the CME, which also offers Bitcoin futures and options.