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Things have changed. Cryptocurrency has slowly made the jump from being a fringe concept dominated by young tech enthusiasts to a viable alternative asset class held by many blue blood U.S. institutions. This transition started slow but has recently picked up considerable steam. In fact, a recent headline announced an actual sovereign nation (El Salvador) as recognizing bitcoin as a legitimate and legal tender. 

This particular milestone is interesting in that the commonly held belief was that governments would be opposed to cryptocurrencies and eventually attempt to regulate them out of existence. The existence of an alternate means of exchange, outside sovereign fiat currencies, seems like it should be cause for alarm, and the fact that this hasn’t happened yet is somewhat confusing. Recently, Senator Elizabeth Warren gave a speech in which she aggressively stressed the need to regulate cryptocurrencies, but it seemed to gain little traction. 

Bitcoin and Ethereum Futures

Of the milestones that have marked the growth and transition of cryptocurrencies, none are greater than CME Group’s launch of futures contracts in both bitcoin and ether. Yes, there are plenty of global exchanges that preceded the CME’s involvement, but none have the stringent regulatory history of CME nor do they have the long track record of offering deeply liquid institutional derivative products. 

Since the first Bitcoin futures contract launched in 2017, its growth has been tenfold in less than five years and currently trades almost $5 billion in notional value per day. The Bitcoin and Ether futures contracts are geared more toward institutional use and their growth both mirrors and fuels their increases in adoption.

One phenomenon that has sparked curiosity was the fact that notional volume in futures and other derivatives exceeded cryptocurrency spot volume during the massive correction occurring in May. Part of this is a natural desire to avoid capital gains taxes in long held crypto but it also underscores the existence of huge institutional involvement already participating in the space. The recent launch of CME Micro Bitcoin futures contracts, designed for both institutions and sophisticated, active traders, is already showing promise in creating a complementary marketplace where liquidity could thrive.

Ether Gains Market Share

Even as recently as seven months ago it seemed that bitcoin’s lead over ether in the crypto world was insurmountable. Bitcoin accounted for 70% of the total cryptocurrency market, fueled in part by big names like Stanley Druckenmiller and Paul Tudor Jones expressing positive sentiment. Since that time bitcoin’s dominance has dwindled. Bitcoin now accounts for 40% of the total crypto market while Ethereum has moved up to 15%.

Year to date performance in both assets reflects the growing interest in ether. Since January 1, bitcoin is up 41% while ether has rallied a staggering 255% in the same time period.  Of course, there are some key differences in the technology of the two cryptos that may have driven investment into ethereum from bitcoin, or it may just be a desire to diversify. Either way, the new landscape confirms that there is room for more than one dominant coin. 

Although it seems impossible to predict price movements in such highly volatile assets a couple things seem true: The first and most obvious is that new participants mean new buyers, not sellers and this, by definition, drives prices higher. Second, as each month passes without significant opposition, crypto becomes more entrenched.

Finally, I believe it’s folly to assume that because there are two current leaders in the space that the question of what coins will survive is settled. Things move fast in the crypto world.


 

 

OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).

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