Arthur Hayes Explores Arbitrage Opportunities Following Bitcoin ETF Launch

The approval of a Bitcoin ETF in the United States has paved the way for a range of strategies at the intersection of the cryptocurrency market and TradFi. This was highlighted by former BitMEX CEO Arthur Hayes in his blog post.

Opportunities will arise in the following areas:

• the process of creating and redeeming ETFs;
• spot exchange arbitrage with time series analysis;
• ETF derivatives such as options listed on exchanges;
• the impact of financing transactions for exchange-traded funds.

Details of each strategy were elaborated by the expert in his blog.

Hayes suggested that the product’s approval was possible due to the likelihood of a prolonged period of high inflation.

In this context, Bitcoin ETFs might attract some flows from bonds, whose prices are expected to continue declining despite anticipated easing by the Fed. As an explanation, the expert referred to wars triggered by the collapse of Pax Americana and the resulting price increases.

The expert predicted a shift in the price discovery mechanism for digital gold from East to West if the new product succeeds. 

Currently, prices are formed on Binance (presumably in Abu Dhabi) and OKX. As major management companies launch global distribution networks, trading volumes will shift towards the Western hemisphere, Hayes explained.

The former BitMEX CEO also noted Hong Kong’s plans to launch an “exact copy” of the ETF to concentrate flows within China and the Asia-Pacific region.

The aforementioned arbitrage opportunities will remain relevant as daily turnover of the products reaches billions of dollars, Hayes explained. According to his data, on January 12, the figure already reached $3.1 billion. The specialist expects further growth of the metric.

According to the former head of BitMEX, spot Bitcoin ETFs will help avoid the “terrible returns that bonds currently offer in a global inflation environment.”

In the foreseeable future, it will become evident to managers that bonds have ceased to perform their function at zero interest rates and persistent inflation, he noted.

“A mass exodus from the bond market, which is over $100 trillion, will destroy countries,” the expert predicted.

According to Hayes, the current correction in Bitcoin does not signify the formation of a peak in the current cycle. 

“Worldwide, authorities are inventing reasons for the money printer to work. Once the narrative and sufficient crisis allow […] to use the fear of a financial system collapse to scare the public […], money will flow […]. We will enter another phase of the bull market,” he explained.

At present, Hayes plans not to increase risks in the cryptocurrency market until mid-March, when he expects a decision on the extension of the BTFP and the Fed rate.

“The bull market is just beginning. 2024 will be turbulent in terms of dynamics, but I still expect that by the end of the year we will reach an all-time high for Bitcoin and the entire digital asset market,” he concluded.

Back in January, Hayes warned of a 20-30% Bitcoin correction due to declining dollar liquidity.