Tarbert first declared ether a commodity earlier this month, announcing that his agency would be willing to approve futures contracts on the world’s second-largest cryptocurrency by market capitalization.
Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert believes the crypto world will see ethereum futures contracts sometime in 2020.
Speaking at Georgetown University in a fireside chat during the first day of DC Fintech Week, Tarbert told moderator Chris Brummer that he “absolutely” believes ether futures could trade in the next six to 12 months.
“I’d say it is likely that you would see a futures contrast in the next six months to a year”, he told Brummer, though he cautioned that simply launching a futures contract isn’t the be-all and end-all. He went on to add:
“The volume to which it’ll trade, no idea, that’s where the markets decide, but my guess is now that we’ve provided at least … a little bit more clarity on ether’s eligibility for futures contracts, my guess is market participants will consider that.”
However, it remains unclear who might actually be interested in offering ether futures contracts to the U.S. market. Speaking to reporters after his appearance on stage, Tarbert noted that, at least to his knowledge, no company has applied to launch such a product.
“None that I know of”, he said in response to a question about who has applied. “My guess is that it will come soon but I don’t know where they’re coming from.”
Spokespeople for CME, Cboe and the Intercontinental Exchange – which all offer or offered bitcoin futures contracts – did not immediately return requests for comment.
On the CFTC’s side, approving an ether futures product will depend on the application itself, Tarbert said. Companies looking to list these contracts can apply to self-certify or can have the CFTC go through the product and approve it. The process would be similar to approving bitcoin futures contracts.
Exchanges “could start it on their own or they could come to us with an application and ask us to grant it to be able to offer the product”, he told a press gaggle, adding:
“Now in the past most people have not been self-certifying, they’ve been coming to us particularly if they’re creating an entirely new exchange and DCO derivatives clearing organization so it’ll depend I think in large part on who wants to have it on their trading platform. Is it one of our existing exchanges that’s been working with the CFTC for years or is it an entirely new platform that wants to specialize in it?”
At present, there are about four dedicated crypto exchanges looking into derivatives products (Tarbert didn’t name them, but they are likely Seed CX, ErisX, Tassat (formerly trueDigital) and LedgerX), as well as the larger, more established firms that offer bitcoin futures, the CFTC Chairman said.
During the fireside discussion, Tarbert added that buyers and sellers would hopefully be reassured that using a CFTC-regulated exchange indicates that there is no market manipulation.
“What our markets do, and have been doing for 150 years is ensure there’s sufficient price transparency”, he said. “You know that there’s the buyers and the sellers and that price actually represents real aggregate demand.”
The CFTC may soon acknowledge other cryptocurrencies as commodities, Tarbert said during his fireside chat.
“There will be other derivatives coming soon to a market near you for crypto assets”, he said, though “coming soon” is relative, given that there are “a couple thousand” cryptocurrencies to assess. He added:
“As the the SEC sort of works through its process and we work through ours and other regulators, it’s likely we’ll see more but I can’t tell this audience that it’s necessarily coming soon because even the two that we thought about – bitcoin and ether – it took us quite some time to work through those.”
There may be a demand for other futures contracts. In the U.K., Kraken Futures (formerly known as Crypto Facilities) offers residents access to bitcoin cash, litecoin and XRP futures contracts, all of which have grown in popularity after the U.S.-based Kraken acquired the company.
Part of the process is working with the U.S. Securities and Exchange Commission (SEC), Tarbert said, noting that under current federal law, any instrument that is not a security is “most likely” a commodity (though exceptions apply: Congress has specified that movie tickets, for example, are not commodities).
“What we’re seeing is that if the SEC has undertaken its analysis and comes to the conclusion that the particular crypto asset doesn’t meet the old Howey Test as to whether it’s an investment contract and therefore a security, in most cases it’s going to fall in the commodities bucket”, he said.
Tarbert also said that an asset can evolve from a security to a commodity and vice versa, though there may not be a precedent for this.
In response to a question from Castle Island Ventures’ Nic Carter about whether this sort of transmutation has occurred before, Tarbert said:
“Not that I am aware of.”