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Arthur Hayes: I bought a $3,000 Ethereum options contract expiring in December 2022.

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Arthur Hayes: I bought a $3,000 Ethereum options contract expiring in December 2022.

BitMEX founder Arthur Hayes shared his latest article "Max Bidding", where he sets up four ETH/USD price predictions and expectations based on the default "Ethereum Merger" yes/no and "Federal Reserve pivots to inflation policy" yes/no scenarios, with a deadline of March 31, 2023. He also discusses his underlying assumptions and predictions.

Arthur Hayes' Assumptions

  • Confident that a merger will happen by the end of this year, as more miners are discussing the PoS world that would make them lose profits
  • The recent market downturn has shattered the beliefs of people who were bullish on Ethereum and DeFi in this round, such as the staunch supporters of Three Arrows Capital Su Zhu, who have now become indiscriminate sellers
  • There won't be a "buy the rumour, sell the news" scenario, as in the past month, those who needed to sell have already sold
  • The merger will turn Ether into a deflationary currency, with increased usage as DeFi becomes more popular, intensifying the deflation rate
  • Although L1 has competitors, they inherently have some PoS algorithm features. Ether is the only mainstream cryptocurrency transitioning from PoW to PoS

Four Possible Scenarios and Price Predictions

Arthur Hayes outlines four possible scenarios with a deadline of March 31, 2023

  • Successful Merger/Inflation Pivot: Fed printing money, altcoins surging, post-merger Ether bullish narrative
  • Successful Merger/No Inflation Pivot: Expected supply reduction leading to Ether price increase
  • Unsuccessful Merger/Inflation Pivot: Cryptocurrency market attracting fiat inflows
  • Unsuccessful Merger/No Inflation Pivot: Returning to recent lows

Arthur Hayes: What Actions Can Be Taken?

Based on the current price of Ether at 1600, with probabilities of 25% for each of the four scenarios, Arthur Hayes calculates the expected value of Ether and deduces a 75% probability of a price of 2815. Note: Arthur Hayes considers all events to have equal probabilities, and the projected prices are subjective estimates for reference only.

  • Ether Spot: The current trading price is cheaper than the expected price, and with the expectation of a possible PoW fork of Ether, selling for profit would be the most straightforward option.
  • Ether/USD Futures: As of 8/4, the Deribit ETH/USD futures contract for March 31, 2023, is trading at $1,587. The futures market still remains below Arthur Hayes' expected value, aligning with his trading inclination.
  • ETH/USD Call Options: With the expected value for March 31, 2023, being 2815, Arthur Hayes should buy a call option with a strike price of $2800, purchasing the right to buy 1 ETH, currently priced at 0.14 ETH Delta: 0.37, Implied Volatility: 98.3%. However, he wants to take on more risk in light of the merger and potential upside, bear less time value, so he bought a December 2022 option contract with a strike price of $3,000.

Finally, he mentions that he might buy more ETH spot and engage in other financing transactions to maximize opportunities from market mispricing. "MAX BIDDING Ether," he says.