In a recent post, Arthur Hayes, Chief Investment Officer of Maelstrom and former CEO of BitMEX, highlighted the market inefficiency and unique behavior of Bitcoin compared to traditional assets. According to him, these characteristics are attracting significant capital from broader financial markets.
As one of the early and notable bitcoin traders, Hayes discussed the potential impact of spot Bitcoin Exchange-Traded Funds (ETFs) on trading opportunities, emphasizing their ability to capitalize on price disparities between U.S. benchmarks and global fluctuations.
Arthur Hayes: Arbitrage Opportunity in the Bitcoin Market
Hayes expressed anticipation for a sustained arbitrage opportunity in Bitcoin markets, expecting billions of dollars to flow within a concentrated hour on exchanges with lower liquidity. Hayes states:
“For the first time in a long time, the Bitcoin markets will have a predictable and long-lasting arbitrage opportunity. Hopefully, billions of dollars of flow will be concentrated in an hour-long period on exchanges that are less liquid and price followers of their larger Eastern competitors. I expect there to be juicy spot arbitrage opportunities available.”
Hayes foresees the emergence of spot ETF products in major Asian markets, particularly in Hong Kong, catering to the “China southbound flow.” According to him, the presence of highly regulated exchange platforms in Asia, along with native digital asset exchanges, could introduce additional market inefficiencies, providing traders with attractive profit opportunities. He explains:
“Whatever happens in New York and Hong Kong, neither city will allow fund managers to trade Bitcoin at the best price, but they may only trade on “select” exchanges. This unnatural state of play only serves to create more market inefficiencies from which we, as arbitrageurs, can profit.”
ETF Financing
Moreover, Hayes identified ETF financing as a sector poised for growth, especially as bitcoin trading becomes more prevalent in the years to come. Banks can establish desks offering fiat loans against bitcoin ETF holdings, enabling them to profit from the spread. This could exert an influence on bitcoin interest rates, thereby contributing to market imbalances.
Notably, ETF financing is emerging as a strategic avenue within the digital asset landscape, addressing the persistent need for fiat liquidity among investors while maintaining exposure to digital assets.
While many centralized lending platforms like Blockfi, Celsius, and Genesis faced failures, ETF financing leverages the structure of ETFs, offering a novel approach. In this process, Authorized Participants (APs) participate in the interbank market, borrowing USD to create ETF shares and hedging Bitcoin/USD price risks.
This mechanism not only fosters positive carry but also enables the lending of ETF shares in exchange for Bitcoin collateral.
Short-Term Prediction
Despite his optimistic outlook on the potential for arbitrage opportunities and market growth through ETFs, Hayes expressed a bearish stance on bitcoin in the short term. He expects a 30% correction in prices, aligning with the sentiments of several other traders who anticipate prices dropping as low as $38,000 before experiencing the next upward trend.
As the digital asset industry continues to mature, the interplay between global markets, ETFs, and traditional financial institutions is expected to play a crucial role in shaping the future of Bitcoin.
