Ethereum Futures Are Now Trading on CME

Ethereum Futures Are Now Trading on CME

Bloomberg

(Bloomberg) – There is nothing about the finances of Blink Charging Co. that would suggest it’s one of the hottest stocks in America.It’s never posted an annual profit in its 11-year history; it warned last year it could go bankrupt; it’s losing market share, pulls in anemic revenue and has churned through management in recent years.And yet a hot stock it is. Investors have bid Blink’s share price up 3,000% over the past eight months. Only seven stocks – out of about 2,700 that are worth at least $1 billion – have risen more over that time. The reason: Blink is a green-energy company, an owner and operator of charging stations that power up electric vehicles. And if investors are certain of one thing in the mania that is sweeping through financial markets, it is that green companies are can’t-miss, must-own investments of the future.No stock better captures this euphoria than Blink. With a market cap today of $2.2 billion, its enterprise value-to-sales ratio – a common metric to gauge whether a stock is overvalued – has blown out to 493. For some context, at Tesla Inc. – the darling of the EV world and a company with a very rich valuation itself – that number is just 25.“Everything about it is wrong,” said Andrew Left, the founder of Citron Research. “It is just a cute name which caught the eye of retail investors.”Citron was one of a handful of firms that bet against Blink last year, putting on short-sale trades that would pay off if the share price fell. It’s one of several wagers against stocks favored by the retail-investment crowd that have gone against Citron – with GameStop Corp. being the most high-profile – and prompted Left to declare Jan. 29 that the firm was abandoning its research into short-selling targets. Overall short interest on Blink – a gauge of the amount of wagers against the stock – has fallen to under 25% of free-floating shares from more than 40% in late December.For the short-sellers, one of the things that raised alarms is that several figures tied to Blink, including CEO and Chairman Michael Farkas, were linked to companies that ran afoul of securities regulations years ago.Farkas dismisses this and the other criticisms lobbied by the shorts. “There have been and always will be naysayers,” Farkas said in an email. “When I founded the business, the naysayers questioned whether the shift to EV was real. Now, as the value of our business grows, the naysayers tend to be the short sellers.”In the CrosshairsMaking money on charging is, historically, a losing proposition. In theory, a model like Blink’s that involves both equipment sales and collecting user fees could become consistently profitable as government support accelerates EV adoption. But no one’s done it yet.“This market is still too small and early-stage,” said Pavel Molchanov, an analyst at Raymond James & Associates. “It will take time for economies of scale to materialize.”Even by the industry’s fairly forgiving standards, Blink’s revenue is meager, totaling an estimated $5.5 million in 2020. ChargePoint Inc., which announced plans to go public via a special purpose acquisition company last year, generated $144.5 million in revenue in 2020, according to a January filing. EVgo Services LLC, which is nearing a similar deal to go public through a SPAC, has a smaller charging network than Blink but more than double the sales – an estimated $14 million in 2020. Despite the wildly different revenue figures, all three companies have an enterprise value of between $2.1 billion and $2.4 billion.Blink warned in a May filing that its finances “raise substantial doubt about the Company’s ability to continue as a going concern within a year,” a required disclosure when a company doesn’t have enough cash on hand for 18 months of expenses.“Electric is real. The stock prices of companies in the space are not,” said Erik Gordon, an assistant professor at University of Michigan’s Ross School of Business. “The dot-com boom produced some real companies, but most of the overpriced dot-com companies were lousy investments. The electric boom will be the same story. Some great companies will be built, but most of the investors who chase insanely-priced companies will be crying.”Still, the recent market boom has breathed new life into Blink, allowing it to raise $232.1 million though a share offering in January. Roth Capital Partners as recently as Friday recommended buying the stock, giving it a price target of $67, 26% above the current level. The company’s prospects rely on exponential EV growth, and Farkas in January discussed plans to deploy roughly 250,000 chargers “over the next several years” and often touts the company’s ability to generate recurring revenue from its network.Currently, the company says it has 6,944 charging stations in its network. An internal map of Blink’s public fleet lists about 3,700 stations available in the U.S. By contrast, ChargePoint boasts a global public and private charging network that’s more than 15 times larger.Unlike some of its competitors, Blink’s revenue model hinges in part on driving up utilization rates, which for now remain in the “low-single-digits,” too scant to generate significant revenue, Farkas said during a November earnings call. He told Bloomberg that use will increase as EVs become more popular.For most chargers in operation now, utilization probably must reach 10%-15% to break even, although profitability depends on many other factors such as a company’s business model, electricity rates and capital costs, according to BloombergNEF Senior Associate Ryan Fisher.Blink was an early market leader among charging companies but has lost its lead and now controls about 4% of the sector in Level 2 public charging, said Nick Nigro, founder of Atlas Public Policy, an electric car consulting and policy firm.Blink has also acknowledged “material weaknesses” over its financial reporting, disclosed in U.S. Securities and Exchange Commission filings dating back to 2011. The company says it has hired an accounting consultant to review its controls and is making necessary changes.Origin StoryBlink’s colorful origin story has been a prime target of short-sellers. It traces back to 2006 when it formed as shell company New Image Concepts Inc. to provide “top-drawer” personal consulting services related to grooming, wardrobe and entertainment, according to an SEC filing.In December 2009, the company entered a share exchange agreement with Car Charging Inc. Farkas joined the company as CEO in 2010, after working as a stockbroker and investing in companies including Skyway Communications Holding Corp., which the SEC deemed a “pump-and-dump scheme” during the years Farkas held shares. (Farkas said he was a passive investor, was unaware of any misdeeds and “had no involvement in any capacity in the activities of Skyway.”)In 2013, Farkas oversaw Car Charging’s $3.3 million purchase of bankrupt Ecotality, which had received more than $100 million in U.S. Department of Energy grants to install chargers nationwide. The company later changed its name to Blink.Since then, Blink has been plagued by executive turnover, with three of five board members departing between November 2018 and November 2019. The company has had two chief financial officers and three chief operating officers since 2017. One former COO, James Christodoulou, was fired in March 2020. He sued the company, accusing it of potential securities violations, and reached a settlement with Blink, which denied any wrongdoing, for $400,000 in October.Financier Justin Keener, a one-time major Blink shareholder whose capital assisted the company’s 2018 Nasdaq listing, and the company he operated were charged last year for failing to register as a securities dealer while allegedly selling billions of penny-stock shares unrelated to Blink. He said he has since divested from Blink and now owns “a relatively small number of common shares” as a result of a settlement of a warrant dispute with the company. Keener denies the SEC allegations.Farkas told Bloomberg he has cut all ties to Keener, was unaware of any investigations going on while they worked together and has no knowledge of any wrongdoing by Keener.The surging stock has brought a windfall to Farkas, Blink’s largest shareholder. On Jan. 12, after shares rallied to records, he sold $22 million of stock, according to Bloomberg data. Farkas’s total compensation, including stock awards, totaled $6.5 million from 2016 to 2019, equivalent to more than half the company’s revenue. Included in his 2018 compensation were $394,466 in commissions to Farkas Group Inc., a third-party entity he controlled that Blink hired to install chargers.Farkas said his compensation is justified given that he had personally invested in the company’s formation and had for many years received shares in lieu of salary.More recently, Blink board member Donald Engel followed the CEO’s lead.He sold more than $18 million of shares during the past two weeks.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

CME Group Launches Ethereum Futures Contracts

The Chicago Mercantile Exchange (CME) Group, a leading United States derivatives exchange, has launched the much-anticipated Ethereum futures contracts on Sunday after the initial announcement late last year.

The derivatives exchange announced on Twitter that ETH futures went live at 6 pm (Eastern Time) on Sunday “for a first trade date of Feb. 8.”

Kicking off this Sunday evening: Ether futures start trading at 6:00 p.m. ET for a first trade date of Feb. 8. https://t.co/vc2hkZf9ql — CME Group (@CMEGroup) February 7, 2021

The contracts were opened at a price of $1,669.75 when the Ethereum market price was around $1,600. The contract details on the CME website show that there will be 50 Ether on each contract, and they will be cash-settled.

Institutions need to purchase at least five contracts.

Will Ether Be Institutions’ Second Choice?

Derivatives are seen as the preferred institutional investment mode. Though many foreign exchanges are already listing ETH futures, CME is the first US exchange to list these contracts, allowing US investors to trade them.

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The listing came at a time when Ether is on a bull run, and its prices touched an all-time high.

Cryptocurrency analysts are getting more bullish on the prices of Etherum, some even predicting the prices to go up to $5,000 to $20,000 levels by the end of this year.

The earliest traditional financial institutions that bought BTC are already looking at ETH, if not bought already. And rightfully so. The most used cryptonetwork + future of finance + a potential deflationary monetary policy narrative make it extremely compelling. — Qiao Wang (@QwQiao) February 7, 2021

As derivatives are a significant financial product for any asset, we have seen its impact on Bitcoin. Cboe launched the first Bitcoin futures in the United States in December 2017, followed by CME Group. Then, Bitcoin toughed the iconic $20,000 previous peak before plummeting heavily. The cryptocurrency is now peaking at around $40,000.

Many institutions have invested heavily in Bitcoin in recent years. Now with Ethereum derivatives in the market, it is to be seen if a second digital currency can gain the trust of the institutions, despite many of its technical flaws.

CME Launches Ethereum Futures, ETH Price Stays Steady

In brief The Chicago Mercantile Exchange (CME) has launched Ethereum futures trading.

CME’s new offering will accompany Bitcoin futures and options it launched three years ago.

The launch of ETH futures is the next step towards the adoption of crypto in the institutional finance sector, experts noted.

The Chicago Mercantile Exchange (CME) has launched Ethereum futures trading on its platform, making it easier for institutional investors to gain exposure to the world’s second-largest cryptocurrency by market cap.

According to data from Skew, a total of 77 Ethereum futures contracts have already been traded since the launch. Per CME’s specifications, the contracts are for 50 ETH each (currently around $81,650 each or $6.3 million combined).

“With the Ethereum network enabling tens of new ‘crypto unicorns’ in the last year, ETH is poised to become a clear focal point for investors seeking exposure to the broader innovation enabled by crypto, and its now numerous use cases,” Lior Messika, founder and managing partner at EU venture fund Eden Block, told Decrypt.

He added that in many ways, Ethereum is currently in a much earlier stage of discovering its full potential, while the “narrative of Bitcoin” has been proving itself for over 10 years already.

CME ether futures start trading. 77 contracts crossed so far. ETH / BTC retraced a bit. pic.twitter.com/YaFwtV4Jir — Documenting Ethereum 🧾 (@DocumentEther) February 8, 2021

A type of derivatives contract, futures are designed for selling an asset at a specific price on a certain date in the future. Unlike options, futures contracts must be fulfilled on their expiration date. This way, it is somewhat of a financial gamble where one of the two parties “wins” depending on the difference between the contract’s strike price and the actual market price of the asset at the time.

Institutional exposure to DeFi

While CME launched Bitcoin futures and options trading a little over three years ago—marking the top of Bitcoin’s bull run—it took its time before adding another coin to the list. But Ethereum is quite a different beast. The blockchain platform serves as a foundation for countless decentralized finance (DeFi) projects.

Kadan Stadelmann, CTO of blockchain solutions provider Komodo, said that CME’s launch of ETH futures is “the next step” towards the adoption of cryptocurrencies in the institutional finance sector that the crypto industry has been waiting for.

Ethereum tokens. Image: Shutterstock

“Bitcoin and Ethereum are obviously in a different stratosphere when looking at current crypto adoption, but I do believe this is only the beginning of futures trading expansion among large institutions. We will see more assets supported and more players in the mix,” Stadelmann told Decrypt.

He explained that, when CME first launched Bitcoin futures back in 2017, the market was quite different from what it is today. At the time, smart contracts technology was in its infancy, and not as many understood what blockchain really is. But today, Ethereum is a “global financial powerhouse” with ETH at the center of it.

“Everything from decentralized exchanges to lending protocols to NFT marketplaces is currently running on the Ethereum network. CME Group, as well as other major institutions, are clearly bullish that cryptocurrencies and decentralized technologies will only gain more momentum in the coming years,” Stadelmann added.

As Decrypt reported last Friday, digital asset manager Grayscale added over $38 million worth of ETH to its Ethereum holdings in just one day. But do the institutions solely want price action, or will they be lured into the DeFi space too?