By Samuel Indyk
Investing.com – Ethereum, the second largest cryptocurrency by market cap, hit a new all-time high on Tuesday before paring back some of the gains as futures continue trading on the Chicago Mercantile Exchange. Ethereum futures were launched this week with just under 400 contracts traded on the first day. That amounts to around 19.5K Ethereum or roughly $33mln worth of volume.
Markets will be keenly watching trading over the next few weeks after the volatility seen when the Bitcoin Futures contract launched three years ago. The launch of the bitcoin futures contract coincided with the (then) peak before the price crashed. Bitcoin had reached $19,511 at its 2017 peak before tumbling below $7,000 in the months after the futures contract launched.
A later research study from the San Francisco Fed suggested that the launch of the futures contract could have been a reason for the decline as it gave an easier method to short the cryptocurrency. It also provided market participants a better way to hedge their exposure.
Crypto credibility
Whether similar price action happens to Ethereum will be something to look out for in the coming weeks. However, this time it may be different. Since 2017, cryptocurrencies have gone through somewhat of a resurgence. PayPal Holdings Inc (NASDAQ:PYPL) users in the US can now buy, sell and hold certain cryptocurrencies through PayPal using their Cash or Cash Plus account.
One of the most supportive pieces of news for cryptocurrencies in recent weeks was the news that Tesla Inc (NASDAQ:TSLA) had bought $1.5bln worth of Bitcoin to diversify their reserves. The news sent the cryptocurrency to new all-time highs approaching $50,000. Further supporting the cryptocurrency was the news that Tesla expects to begin accepting bitcoin as a form of payment for products in the near future.
“Whatever you think of Bitcoin (and Tesla’s) valuations this announcement gives the crypto currency further institutional credibility in the near-term," said Deutsche Bank’s Jim Reid in a research note.