We could get regulated Ethereum futures in 2020 – What effect will it have on ETH/USD?

Ethereum futures are set to hit the markets next year and traders are wondering if they could have the same initial effect on ETH/USD that Bitcoin futures had on BTC/USD. The digital currency is currently the second-largest cryptocurrency with a market cap of $14,285,029,568 and is third on the volume rakings ($9,865,011,248 ave) behind Tether and Bitcoin. The one issue I have with cryptocurrency derivatives is the fact it could take volume away from the underlying asset. Some say this is a good thing as it takes away some of the so-called "not so serious" traders away from the markets.

Ethereum Futures Release Date

Heath Tarbert is the Chairman of the Commodity Futures Trading Commission (CFTC) and he noted:

It is my view as Chairman of the CFTC that Ether is a commodity, and therefore it will be regulated under the CEA. And my guess is that you will see in the near future Ether-related futures contracts and other derivatives potentially traded.

Although there has been no official date given, Heath Tarbert said he thinks it could happen between six and twelve months when he was interviewed back in October.

Just like Bitcoin, the hope is having a regulated futures product would bring more institutional players to the market. Ethereum futures already exist on the BitMEX and Binance exchanges but they are not regulated by a body like the CFTC and traded on an exchange with the reputation as large as the CME.

Bitcoin Futures started trading at the Chicago Mercantile Exchange (CME) on December 18th 2018, on that day BTC/USD opened in London at 3,497.10. Six days later BTC/USD traded as high as 4,239.37, so it clearly has some effect.

Ethereum Price Action

Over a long term basis, ETC/USD is in a serious downtrend for months. In late June the pair was trading at 363.29 and at the moment the major support is 120.00 that’s a fall of just over 67%. ETC/USD is also trading under both the 55 and 200 daily EMA's, which is also a pretty bearish sign. The next support is at the 100 psychological and if that is breached it would be a massive bearish signal and a big win for the bears. The pattern on the chart is a massive descending wedge formation. For now, it seems that the price is respecting the pattern and the downtrend will remain intact. Longer-term for bulls to break charge a break of the trendline is needed and the 200 psychological resistance may need to be broken along with the 200 period EMA.

Ethereum 2.0

Ethereum 2.0 genesis block is launching on January 3, 2020, to mark Bitcoin’s 11-year anniversary, It is being made by developers who are targeting a deposit amount of 2 million ETH before the genesis block. Ethereum 2.0, also known as Eth2 or Serenity, will bring Sharding, Proof of Stake (PoS), a new virtual machine (eWASM) and is said to have many more innovations. At the start it is important to know that this upgrade will take place in a few phases. This update will be focused on ensuring that the Beacon Chain (Phase 0) is stable and ready for implementation of Phase 0 sharding. This includes numerous clean-ups, bug fixes, enhanced tests, and networking updates in its changelog.

What to expect in 2020

It will take a mammoth effort from the bulls to create a change in fortunes for ETH/USD. The market is in a serious downtrend and the general crypto volume and sentiment has been weakening over the last few months. If Ethereum Futures do come to market I doubt it will have a material effect on ETH/USD price action. The market is used to Bitcoin futures and the move higher after the release Bitcoin futures may not be replicated in Ether. However, the release of Ethereum 2.0 could be a big deal. Whenever a technological advance takes place it is good news for the cryptocurrency involved. Although it is hard to say how the market will react the event is definitely one to watch.

More crypto derivatives do not really help the price of the underlying asset. If CFD's, options, futures and other derivatives become more popular then the volume will be even lower on the physical crypto exchanges. Either way, positive sentiment might return to the crypto sphere and the growth of the DeFi market and crypto payments market could be key.

This article belongs to the 20 trading ideas for 2020 series. Check the full list of 2020 pieces.