Arthur Hayes, the Co-Founder and former CEO of BitMEX, recently wrote an essay discussing the implications of the recently approved US-listed spot Bitcoin ETFs and their broader impact on the global financial system and the cryptocurrency market.
The Necessity of Keeping Capital Within the System
Capital needs to remain within the financial system to manage unproductive debt. Bitcoin, being outside the system, now has little to no correlation with bonds.
Financialization of Bitcoin via Spot ETFs
To prevent a scenario where capital flees a potential blowup in global government bond markets, Bitcoin should be financialized by creating a highly liquid Exchange Traded Fund (ETF).
The Timing and Approval of Spot Bitcoin ETFs in the U.S.
Arthur Hayes questioned the sudden receptiveness of the U.S. SEC to approve a spot Bitcoin ETF application within six months, when similar applications were previously denied.
The Nature of a Spot Bitcoin ETF
A spot Bitcoin ETF is a trading product used to earn fiat. It remains within the TradFi system, so for true escape, you should buy Bitcoin and self-custody it.
Why Approve the Spot ETF Now
The spot ETF’s approval may be linked to the critical juncture for the global financial system. Inflows into spot Bitcoin ETFs could be substantial, particularly if bond prices continue falling.
China’s Role and the Market Impact of the Spot Bitcoin ETFs
China is likely to launch a copy of a US-listed spot Bitcoin ETF in Hong Kong to capture flows within China and the Asia Pacific. The market impact will be substantial, considering Blackrock’s status as the world’s largest asset manager.
Creation and Redemption of ETF Shares
The process of creating and redeeming shares of the ETF involves large TradFi firms as authorized participants (APs), with potential for arbitrage opportunities.
Leveraged Derivatives and Options Trading
The potential for leveraged derivatives and options trading related to the ETF is high, especially once listed options start appearing on US exchanges.
Hot Take
The spot Bitcoin ETF approval and financialization could impact the global financial system significantly. No correlation with bonds means capital remains within the system. The impact may be substantial, especially if bond prices continue falling. As a result, potential arbitrage opportunities may open up within the ETF market, and leveraged derivatives and options trading might become popular.
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