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Arthur Hayes Identifies Bitcoin Trading Opportunities in the “ETF Casino”

Last Updated January 17, 2024 3:52 PM
James Morales
Last Updated January 17, 2024 3:52 PM

Key Takeaways

  • Arthur Hayes has identified several arbitrage opportunities created by new US-listed spot Bitcoin ETFs.
  • The BitMEX co-founder highlighted strategies that leverage Bitcoin’s price volatility across different spot, derivates and ETF markets.
  • In the months ahead, he predicted that arbitrage trading will increasingly influence global crypto derivatives markets.

In the latest edition of his Crypto Trader Digest blog, BitMEX co-founder Arthur Hayes discussed  the implications of spot Bitcoin Exchange Traded funds (ETFs) landing on US securities exchanges.

Anticipating a wave of new ETF derivatives in the coming months, Hayes identified potential arbitrage opportunities for traders. 

ETF Traders Set to Benefit from Increased Leverage

To provide additional leverage, many traders use financial derivatives known as options. These grant holders the right to buy or sell an asset at a stated price within a certain period. Securities exchanges offer options contracts for all kinds of investment products. For example, following the launch of 11 spot Bitcoin ETFs, on January 15 NYSE Arca submitted a proposal to the United States Securities and Exchange Commission (SEC) to list options contracts that could be applied to the new ETFs.

In general, crypto options provide higher potential leverage than stock options. As a result, ETFs holding Bitcoin will be more amenable to highly leveraged options than those holding stocks.

Hayes observed “it’s difficult to get 100x leverage in TradFi,” adding that new spot crypto funds would let ETF options traders place highly leveraged bets on the price of Bitcoin for the first time. In turn, this will generate significant arbitrage opportunities. Traders could take advantage of discrepancies between the spot BTC market and the ETFs that follow it. 

Additionally, spot-versus-ETF arbitrage strategies can be further optimized by exploiting divergent trading patterns in US and global markets, Hayes added, predicting that an increased volume of ETF options trading will define global flows of Bitcoin options in the months ahead.

Impact on Daily Trade Cycle

Unlike crypto exchanges, which operate 24 hours a day, seven days a week, US securities exchanges only open seven hours a day, Monday to Friday. Therefore, Hayes argued traders following the ETF market will influence Bitcoin’s daily price cycle more and more. 

For example, Bitcoin ETFs publish the total value of their holdings daily, based on the CF Benchmark price at 4 pm EST. Because of this, Hayes says exchange activity will become focused in the hour before US markets close. This, in turn, could lead to price differences between crypto exchanges, creating what Hayes called “juicy spot arbitrage opportunities”.

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