Ethereum Futures Launch Next Week as No. 2 Cryptocurrency Goes Increasingly Mainstream


Ethereum hit record highs yesterday as crypto investors prepare for futures contracts and other products.

ETHUSD, the second biggest cryptocurrency by market cap, passed $1,500 for the first time on Tuesday. Unlike larger peer Bitcoin (BTCUSD), which broke its 2017 records last December, ETHUSD had challenged old peaks without closing above them. That is, until yesterday.

The price surge comes with CME’s Ethereum futures set to begin trading Sunday evening. They will be the exchange’s second crypto-based futures product, following the launch of Bitcoin contracts three years ago.

Two other products this month will also give investors access to Ethereum. Grayscale announced on Monday it would reopen its Ethereum Trust (ETHE) to accredited investors. Galaxy Digital also plans to launch an Ethereum-based fund for institutional investors in mid-February.

Why Is Ethereum Going Up?

Ethereum has rallied up as decentralized finance (DeFi) gains acceptance. DeFi uses Ethereum as an operating system for loans with “smart contracts” as intermediaries. Smart contracts are fully automated financial programs running on Ethereum. (They’re a way investors can earn interest on crypto holdings.)

Over $28 billion of value was locked up in the DeFi market yesterday, according to DeFi Pulse. It’s increased 82 percent since the end of 2020.

Ethereum (ETHUSD), daily chart, courtesy of TradingView.
Ethereum (ETHUSD), daily chart, courtesy of TradingView.

Backers think it’s just the tip of the iceberg. Mike Novogratz, CEO of Galaxy Digital, predicted in a November 10 YouTube interview that credit-card issues will start using Ethereum in coming months. Mainstream lenders and central banks could follow.

“I think you’ll see more projects migrate” to Ethereum, Novogratz said. “That’s what’s going to drive the attention.”

Ethereum 2.0

Ethereum is also in the process of a major upgrade that will change its mining system from “proof of work” (PoW) to “proof of stake” (PoS). The new rules will pay validators based on the number of coins they own, rather than speed of calculating blocks. That structure is considered faster than PoW, which is used by Bitcoin.

Ethereum 2.0 will also use the computing technique “sharding” that breaks up work into smaller parallel pieces, helping to increase its speed over 5,000-fold. The result is expected to be a fast, reliable, anonymous transaction system. Participants will pay in fractions of Ether known as “wei” (one-billionth of a coin).

Ethereum and Fee Burning

Other changes that could be implemented soon are BASEFEE and so-called “fee burning.” Introduced under EIP-1559 (Ethereum Improvement Proposal), these new standards would calculate a base level for fees and make Ethereum the sole cryptocurrency for payments. Proponents say it would make transaction fees more predictable (potentially encouraging use), while also reducing new supply. Both forces could be positive for Ethereum.

In conclusion, the world of cryptocurrencies continues to advance as more investors gain access to digital assets. Bitcoin was in the spotlight when it gained wider acceptance and broke out last year. Now attention may be shifting to Ethereum.

Trade in milliseconds

Explore the most actively traded options

Trade 600+ futures products on an advanced platform

Previous articleThese Two Little Known Stocks May Track Home Prices
Next articleMarket Pulse: Is Chewy Getting Ready for a Run?
David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.