CFTC regulation to kickstart "institutional investment" in ethereum

By Alex Hamilton | 13 December 2018

Ethereum could experience an influx of institutional money, says Kevin Murcko, CEO of Coin Metro, following a request for public comment on the cryptocurrency from the Commodity Futures Trading Commission (CFTC).

“As the CFTC wants to better understand the differences between ethereum, bitcoin and other altcoins in particular,” says Murcko. “It is likely that a ruling on the crypto market is close at hand. Bringing regulation to the current Wild West of crypto would be a huge boost to the industry, as it will legitimize it, improve standards for exchanges and enable institutional investment in this market.

“It was only a matter of time before the CFTC made its own judgement [on ethereum] as it has jurisdiction over both futures and commodities,” he adds. It’s “particularly positive” to see that the CFTC has called for a public consultation. “The best way to implement regulation within the crypto industry is by having people who know the market advise and guide any regulations being drafted.”

So far, bitcoin remains the only cryptocurrency in the industry with regulated futures trading.

CME Group’s Bitcoin Futures platform was launched in December 2017, following an expedited self-certification process aimed to bring it live during bitcoin’s 2017 bull market. A year into its existence, it operates with an average five-day volume of 2,762 contracts. The relatively low volume hasn’t affected the plans of other exchanges, as Nasdaq has designs on listing bitcoin futures in 2019, following its own approval process with the CFTC.

The regulator is seeking public feedback on a range of questions relating to the technology underpinning ethereum. It plans to explore the “opportunities, risks, mechanics, use cases and markets” related to the cryptocurrency.

The CFTC provides 25 specific questions, clustered around the subjects of purpose and functionality, technology, governance, market and regulation. The questions put focus on scalability issues, the auditing of deposits, and the movement of the network towards proof-of-stake.

Proof-of-stake (PoS) differs from the proof-of-work algorithm used by bitcoin. It involves creating the next node on a blockchain via combinations of random selection, in contrast to the bitcoin blockchain which creates new nodes via the solving of computationally-intense puzzles to validate transactions. Ethereum is expected to undergo its “Constantinople” hard fork in January 2019, as block completion rewards lower from 3 ETH to 2 ETH.

Following the CFTC’s announcement, the price of ether fluctuated around the $90 level. At the time of writing, it stands at $89.54. The cryptocurrency, which has a market capitalization of $9.4bn, is recovering from a price plunge in late November and early December 2018, which saw it drop to a value 94% below its 2017 all-time high of $1,427.

A CFTC spokesperson declined to comment on the matter.

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