- The CFTC is willing to let an ether futures contract go to market after soliciting market feedback last year
- A futures contract might bring in fresh institutional funding to the crypto space
- This, in turn, might reassure retail traders looking at the cryptocurrency
- Futures might also cement the CFTC’s jurisdiction over ether, which at present is limited to enforcement actions
The U.S. Commodity Futures Trading Commission (CFTC) is willing to approve an ether futures contract – provided it ticks all the right boxes, a senior official has told CoinDesk.
The CFTC, which oversees derivatives markets in the U.S., has already allowed bitcoin futures markets to launch, with both CME Group and Cboe Global Exchange offering cash-settled contracts at the end of 2017. Now, the regulator is willing to oversee a similar product for ether, currently the world’s second-largest cryptocurrency by market cap, said the official.
“I think we can get comfortable with an ether derivative being under our jurisdiction,” said the person, who did not want to be identified because the regulator does not typically publicize decisions to adopt new products.
“We don’t do bold pronouncements, what we do is we look at applications before us,” the official said, explaining:
“A derivatives exchange comes to us and says ‘we want to launch this particular product.’ … If they came to us with a particular derivative that met our requirements, I think that there’s a good chance that it would be [allowed to be] self-certified by us.”
However, the CFTC would only respond to a specific application put before the regulator, rather than volunteer an opinion, the individual said.
If proposed and approved, a regulated futures product would open up the ether market to broad institutional investment.
“Many funds have mandates that do not allow them to buy the digital currency underlying,” said John Todaro, director of digital currency research at financial software provider Tradeblock. Further, a cash-settled futures contract, paid out in fiat rather than the underlying crypto, would allow hedge funds and the like “to gain exposure to ether without worrying about custody (which has been a bottleneck to institutional investment),” he said.
In the long run, Todaro added, a CFTC-supervised futures market “could usher in confidence among regulators such as the SEC [Securities and Exchange Commission] which could pave the way for an ETF,” an exchange-traded fund bringing additional liquidity to ether.
An increase in institutional investment would, in turn, bolster retail investors’ confidence in ether, Todaro said.
CME and Cboe’s bitcoin futures, when they first launched, saw an immediate positive response, with enough traders trying to purchase Cboe’s contracts that the firm’s website crashed. The introduction of these futures contracts may also have contributed to bitcoin’s price skyrocketing to its all-time high of nearly $20,000.
To be sure, some have argued that futures may also have hurt bitcoin’s price, though Todaro said that it is more likely that bitcoin’s price had already reached its peak and the approval of futures just happened to coincide with that time.
The CFTC first indicated it was looking at ethereum in December when the regulator published a “Request for Input” (RFI) asking a number of questions about the world’s second-largest cryptocurrency by market cap, the market around it and the underlying technology.
These questions ranged from asking about proof-of-stake (the consensus mechanism that ethereum is expected to eventually adopt to replace bitcoin-style mining) to how ether deposits may be audited.
The agency explicitly asked what impact the introduction of derivatives contracts might have on the cryptocurrency.
George Pullen, a senior economist with the CFTC Division of Market Oversight, told CoinDesk at the end of March that the RFI sought industry and market input on the risks, mechanics and use cases for ether.
In particular, the CFTC was looking to contrast ether with bitcoin, he said, explaining:
“After our initial public white papers, primers, on virtual currencies, bitcoin, and smart contracts it was clear that a one-size fits all approach to crypto was not appropriate and we needed to know more.”
The CFTC’s RFI will help the regulator to understand “the range of issues that might exist” around the ether space, as well as develop better relationships with the crypto community at large, he added.
“It’s critically important for us to engage in outreach to understand the variety in technologies, markets, and the differences in the community; if we’re just listening to our own voices inside the building, the loudest voices in business, or just the voices in D.C. we could miss out on the bigger picture,” Pullen explained at the time.
A total of 35 comments were submitted to the CFTC’s RFI by trade associations like the Chamber of Digital Commerce, think tank Coin Center, startups Blockchains LLC and Circle, exchanges like Coinbase and self-proclaimed bitcoin creator Craig Wright, among others.
The CFTC, or at least its Chairman, J. Christopher Giancarlo, is already pretty popular within the community, which has dubbed him “Crypto Dad” after he called for light-touch regulation around the space.
In addition to giving investors access to a new derivatives product, approving an ether futures contract may cement the CFTC’s regulatory authority over the underlying spot market.
Notably, ErisX, a digital assets and futures trading platform (which wants to offer bitcoin, bitcoin cash, litecoin and ethereum futures when its derivatives clearing organization license is approved), believes that regulating a futures contract on ethereum would grant the CFTC some additional oversight on the ethereum spot market.
Thomas Chippas, the exchange’s CEO, wrote in his response to the RFI that a futures contract that “includes a settlement price set by a physically settled cash market” in the U.S. may improve the CFTC’s “ability to properly oversee or monitor the cash market for fraud and manipulation.” ErisX declined to comment for this article.
The CFTC likely already has some jurisdiction over the ether cash market, several lawyers CoinDesk spoke to said. However, this authority is limited.
Anne Termine, who leads the futures and derivatives practice group at Covington & Burling LLP and was previously a chief trial attorney with the CFTC’s Division of Enforcement, told CoinDesk that the regulator has already clearly said cryptocurrencies are commodities.
“As such, the CFTC has limited regulatory oversight over cryptocurrency spot markets, namely the ability to take enforcement action whenever there is fraud or manipulation in these spot markets,” Termine said.
Amy Davine Kim, chief policy officer with the Chamber of Digital Commerce, a D.C.-based blockchain advocacy group, noted that the regulator has “after-the-fact” enforcement jurisdiction over crypto spot markets in terms of fraud or manipulation, but no jurisdiction over exchanges simply conducting spot transactions.
Moreover, anything that is not a security is usually broadly defined as a commodity, she said.
The question of whether ether is a security has not been officially resolved, but officials at the SEC seem to believe it isn’t. William Hinman, the agency’s director of corporation finance, said at a conference in 2018 that he does not see ether as a security.
His comments were seemingly affirmed by SEC Chairman Jay Clayton in March, who wrote that he agreed with Hinman’s analysis of when a crypto asset might not be a security, though he did not specifically name ethereum.
Introducing a “futures contract would implicate the CFTC’s jurisdiction beyond anti-fraud and manipulation provisions,” Termine explained. The contract would have to trade on a CFTC-regulated futures exchange, meaning it would be subject to the regulator’s direct oversight.
“The implications for the broader community would be enhanced CFTC oversight over [ether] but potentially a legitimization of the cryptocurrency.”
The cryptocurrency, to trade under the ticker symbol LEO, will enable users to receive discounts on trading fees when swapping between cryptocurrencies on Bitfinex exchange and its two cryptocurrency-specific exchanges, EthFinex and EOSFinex.
However, in a move that recalls how it issued tokens in the wake of its August 2016 hack, Bitfinex indicated the tokens will be created as a temporary measure, and that the company intends to buy back tokens as a means of ensuring customers are ultimately refunded.
At the time, Bitfinex issued roughly $72 million in ‘BFX tokens,’ cryptocurrency that was eventually bought back based on proceeds from exchange revenues by April 2017.
This time around, IFinex and its affiliates will buy back the tokens on a monthly basis. Purchases will be made monthly, “equal to a minimum of 27 percent of the consolidated gross revenues of iFinex from the previous month, until no more than 100 million LEO tokens remain.”
The document continues: “Repurchases will be made at then-prevailing market rates. LEO tokens used to pay fees may also be burned.”
In response to allegations by the New York Attorney General’s Office (NYAG), iFinex officials maintain that the funds lost are actually being held by regulators, having been “seized and safeguarded” from Crypto Capital, a third-party banking and payment services provider whose apparent legal issues first spurred Bitfinex to borrow funds from Tether.
Any funds recovered will be used to “repurchase and burn” outstanding LEO tokens, the document says.
Notably, the document does not suggest that the company will not move to create its own permanent blockchain, as have other exchanges like Binance for the purpose of seeking new revenue opportunities related to new cryptocurrency issuance.
Today marks a week since I left my home in Venezuela.
So, here I am, watching the news since 6 a.m., haven’t separated from my phone all day. I’m worried about my loved ones, wondering if I could have done more before leaving, but knowing I had to leave anyway.
I left everything I knew behind, but I also fled an escalating crisis that jeopardized my income as a remote worker in the crypto space, where I’ve been now for years.
For the Venezuelans using cryptocurrency as a tool to survive the economic consequences of a brutal socialist dictatorship, receiving support from the international community has been vital to the reformation process. The trouble is that this attention has quickly deteriorated into a double-edged sword: a trend.
In the last few years, Venezuela has become a favorite pop culture reference in crypto, where bystanders – usually from a privileged background and perspective – spout their ill-wisdom about Venezuelan socialism, economy and migration.
This situation is particularly common in crypto. People armed with good intentions and misinformation about how Venezuela’s economy works – or better said, how it doesn’t work – spread their confusion and often diminish an extremely painful experience being shared by millions of Venezuelans.
So let me, as someone who used bitcoin to survive in Venezuela, clear up the misconceptions: Bitcoin can’t fix the situation in Venezuela.
There are no official statistics of how many crypto wallets there are in Venezuela. There’s no way to know how many each person owns. What it is very clear is that beyond a couple of businesses that accept this form of payment and a few trusted exchange platforms online, there are no services for crypto users available in the country.
No ATMs. No prepaid debit cards. Just assumptions.
The fallacy that bitcoin could “save” a country’s whole economy assumes the country meets all the requirements for mainstream adoption. Just to start, there would be needed widespread computer and financial literacy, reliable electricity infrastructure, stable internet service and an economy that not only allows the majority of citizens to count on a device to keep their digital wallets but also the safe migration from fiat money to digital money.
As we can see, the fact that Venezuela serves as a use case for bitcoin does not mean that it currently has the circumstances for broad cryptocurrency adoption.
The hyperinflation has stepped all over the Bolivar, as it also impacts US dollar-based prices that rise on a daily basis. So using bitcoin to get dollars, which is what many Venezuelans currently do, is still problematic and vulnerable to inflation issues.
There’s also the mining. Venezuela is famous for its off-the-charts rates of bitcoin transactions and mining activity. But the reality is that having access to cryptocurrency is limited to earning freelance income, trading and mining, which unless you are wealthy enough to own your own mining farm, isn’t a feasible option for most Venezuelans.
The crypto misconception
Foreign initiatives to help Venezuelans have instead revealed widespread ignorance about the actual problems that Venezuelans face.
Working personally as a contact for the crypto charity GiveCrypto, owned by Coinbase, during 2018, I found a common problem in this initiative that others have followed: the gigantic misinterpretation of how to help from outside.
In the case of GiveCrypto, the goal was unreachable from the start: to feed 300 people with $100 in bitcoin. That’s 33 cents per person. To anyone with an understanding of the economic situation of the country, hyperinflation wouldn’t be this underestimated. Sadly, it’s quite commonplace.
And this isn’t an isolated case of donations given without much of strategy based on reality.
Crypto donations are very popular nowadays, like in the case of AirTM, which has just announced that will be teaming up with MakerDao on its goal to raise $1 million to distribute between its users in Venezuela, with a goal of giving away $10 to each aid recipient. (Such a small amount doesn’t serve as savings or investment, as it easily vanishes for a week’s worth of expenses.)
Despite all the international efforts to distribute crypto in Venezuela, so far there aren’t any solutions able to make a sustainable and adequate difference beyond what a similar dollar donation could have achieved. The important thing for these foreign brands appears to be just cramming a blockchain-shaped peg into any hole.
Despite this situation, outsider opinions don’t determine the actual impact of crypto adoption for Venezuelans.
It’s true that cryptocurrency is very useful for a specific range of activities that support survival, as an income for freelancers, as a form of remittance for families to receive U.S. dollars at minimum commission, and – when the internet and electricity allow it – for those with an extra income who mine from their GPUs or miners.
I do believe that bitcoin has the capacity to influence Venezuela’s financial landscape in a positive way. As cash loses its value, citizens are pushed toward digital money and eventually, that money could include cryptocurrencies.
While we are in this process, Venezuelans must stop being seen as a punchline for misleading arguments about the benefits of bitcoin. The country situation has shown the many phases of an economic crisis, and there are invaluable lessons that we have learned that give a whole new twist to our view on financial solutions.
That said, the crypto industry needs to stop viewing Venezuela as a testing ground for wild ideas and start viewing us as what we really are: irreplaceable partners in the financial revolution.
- Bitcoin activated twin bullish cues with a 28 percent gain in April: a falling channel breakout on the monthly chart and a close above the 21-month exponential moving average (EMA).
- Prices have again bounced from the historically strong 30-day moving average support, currently at $5,184. This, coupled with the bullish developments on the monthly chart indicates scope for a rally to $6,000 in the next few weeks.
- A UTC close below the 30-day MA at $5,184 would weaken the short-term bullish case and may allow a deeper pullback to the 50-day MA at $4,706.
Bitcoin (BTC) scaled an important price resistance with double-digit gains in April, solidifying the long-term bull breakout witnessed four-weeks ago.
The crypto market leader closed (UTC) at $5,269 on Tuesday, representing a 28 percent gain on the April 1 opening price of $4,092, as per Bitstamp data. That’s the biggest monthly gain since April 2018, as discussed yesterday.
Importantly, April’s close put prices above the 21-month exponential moving average (EMA), currently at $5,248.
That EMA had emerged as a strong price floor in the five months to October 2018, forcing many to conclude that the bear market had ended near $6,000. Bitcoin, however, dived below $6,000 on Nov. 14 – falling to lows near $3,100 by mid-December – and, with that, the 21-month EMA became the level to beat for the bulls.
Now that BTC has secured a monthly close above that key hurdle, the long-term bearish-to-bullish trend change confirmed on April 2 looks more credible. As a result, a rally to $6,000 in the next few weeks cannot be ruled out.
As of writing, BTC is changing hands at $5,300 on Bitstamp – up 2.4 percent on a 24-hour basis.
As seen on above left, April’s candle closed just above the 21-month EMA, the first monthly close above the key average since October 2018.
The bullish close comes four weeks after bitcoin first confirmed long-term bullish reversal by violating the most basic of all bearish patterns – the lower highs and lower lows – with a high-volume break above $4,236 on April 2.
The chart also shows a falling channel breakout, which indicates a bearish-to-bullish trend change. It is worth noting that a similar bearish channel breakout in October 2015 was followed by a 2.5-year bull market (see above right).
Essentially, BTC has activated twin bullish cues – a falling channel breakout and a close above the 21-month EMA – with April’s close at $5,269. These developments are remarkably similar to the ones seen in October 2015.
The above chart shows bitcoin has again bounced up from the 30-day moving average (MA), weakening the case for a deeper pullback put forward by the bearish divergence on the 14-day relative strength index (RSI).
It is worth noting that BTC has suffered significant price pullbacks following the confirmation of the bearish RSI divergence in the past.
This time, however, the pattern seems to have failed, with the price bouncing up from the 30-day MA, a sign of strong bullish sentiment. As a result, BTC could revisit and possibly breach the recent high of $5,627 reached on April 23.
The case for a temporary pullback to the 50-day MA, currently at $4,706 would strengthen if and when the price closes below the 30-day MA at $5,184.