XRP is entering a new chapter as the Chicago Mercantile Exchange (CME) prepares to launch its XRP futures contracts today, May 19.
As excitement builds, long-time trader and prominent XRP community member Aj Allen discussed how this futures launch could influence XRP’s price in the short term. His analysis relies on historical patterns and institutional trading dynamics.
CME XRP Futures: How They Work
Unlike spot trading, CME XRP futures will be cash-settled, meaning traders do not own the underlying XRP. Instead, they profit from price differences between the entry and exit points of a contract, which are settled in cash. This setup allows traders, particularly institutions, to speculate or hedge positions without directly holding the asset.
Retail traders can go long (buy) if they expect XRP’s price to rise, or short (sell) if they anticipate a decline. However, institutional players often employ more complex strategies, according to Allen.
What History Tells Us About Futures Launches
Allen pointed to two notable precedents in crypto futures launches. Specifically, Bitcoin CME Futures went live in December 2017. Allen noted that BTC reached its all-time high of $19,783 shortly after the launch, only to drop 30% to $13,800 within days. It is worth mentioning that this coincided with the peak of the bull cycle at the time.
He also highlighted that Ethereum CBOE Futures launched in February 2018. According to Allen, ETH fell from $1,400 to $1,100 shortly after the futures became available.
These examples suggest that futures markets may trigger profit-taking and downward pressure shortly after launch, as traders capitalize on overextended bullish sentiment or initiate short positions.
Allen noted that professional traders and quant-driven systems often engage in basis trading, which exploits the price gap (the “basis”) between spot and futures markets:
- In contango (where futures price is higher than spot), traders short futures and buy spot XRP.
- In backwardation (where futures price is less than spot price), they buy futures and short spot XRP.
This arbitrage activity forces spot and futures prices to converge but can also introduce short-term volatility.
Additionally, hedging enables XRP holders to mitigate exposure to price fluctuations. If the market turns bearish, spot holders might short XRP futures to offset potential losses.
Will XRP Follow BTC and ETH’s Post-Futures Pattern?
With XRP’s futures debut imminent, many already anticipate a price spike. However, Allen’s analysis suggests a major correction could follow, similar to what happened with BTC and ETH after their futures launches.
Essentially, if history repeats, XRP could experience a rally fueled by speculation, followed by a pullback as shorts and basis trades enter the market.
However, the actual impact will depend heavily on how institutional players engage with the product, and on the liquidity and volume these futures attract. At press time, XRP is trading at $2.35, down 3% over the past 24 hours, and remains 40% below its all-time high.
Beyond the immediate price implications of the XRP futures launch on CME, the product could also bolster XRP’s case for a spot ETF approval. Bloomberg ETF analysts have previously noted that the existence of futures or CFTC-regulated products is a key step toward spot ETF approval.
Indeed, Bitcoin and Ethereum had such products before the SEC approved their spot ETFs in 2024.
DisClamier: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions and do not reflect The Crypto Basic opinion. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Basic is not responsible for any financial losses.
