Arthur Hayes, the creator of cryptocurrency spot and derivatives exchange BitMEX, believes ether (ETH), the token that powers Ethereum’s network, will reach a five-digit price by the end of the year.
“When the dust settles at the end of the year, I predict ETH will be trading north of $10,000,” Hayes wrote in a blog post titled “Five Ducking Digits” on Friday. According to him, the post-Merge cryptocurrency will have the qualities of a commodity-linked bond and an intrinsic yield.
Researchers anticipate that Ethereum’s mainnet and the Beacon Chain proof-of-stake mechanism will join by the end of June. The testnet was successfully launched last month by developers. Users will be able to set aside – or stake – funds in a cryptocurrency wallet to support network operations in exchange for newly created coins once the switch to proof-of-stake is complete.
In other words, the ether that has been staked becomes a revenue-generating asset, comparable to a fixed-income security such as a government bond. Non-staked ether might nonetheless have a commodity-like role. Gas is the cost, or pricing value, necessary to complete a transaction or execute a contract on the Ethereum blockchain network, and it is priced in ether.
“The ETH 2.0 merge, which is scheduled to take place later this year, would entirely transform Ethereum into a proof-of-stake (POS) certified blockchain,” Hayes added. “ETH is rendered a bond by the native benefits paid to validators in the form of ETH-based issuance and network fees for staking ETH in validator nodes.”
To become a complete validator, an entity must hold at least 32 ETH. According to industry insiders, annualized ether staking yields are projected to be in the 10% to 15% range, meaning positive profits when adjusted for US inflation.
According to Hayes, the designation of ether as a bond might lead to money managers investing in the second-largest cryptocurrency. “If we can persuade the fiduciaries that the classification of ETH is a bond rather than a currency, then a whole new group of fiduciary clowns can be cognitively prepped to allocate into the ecosystem,” Hayes said, adding that once ETH is in a bond basket, fiduciaries can make a carry trade.
A carry trade is a strategy that involves borrowing at a low interest rate and investing in a higher-yielding asset. The trader earns from the difference in interest rates.
Fiduciaries, according to Hayes, can borrow US dollars at Treasury yields to purchase 32 ETH, which will be staked. According to data provided by charting platform TradingView, the entire Treasury yield curve is below 2.5 percent, implying that the cost of obtaining dollars is significantly less than the forecast staking yields.
The danger is a drop in the dollar price of ether. This is similar to a local currency bond, in which the issuer’s domestic currency and the borrowed currency are the same.
According to Hayes, in order for investors to lose money on a five-year ether local currency bond, the token’s price would have to fall by nearly 30%, assuming an 11.5 percent yield – the upper end of researcher Justin Drake’s estimates. Furthermore, investors might hedge their negative risk by selling a one-year ETH/USD futures contract. “The broker charged me a +6.90 percent mid-market premium. That is, in order to hedge my local currency ETH bond, I am really RECEIVING revenue “Hayes penned the piece.
“I sell the ETH/USD forward contract at a discount to spot. This is a good carry trade. There are few trades where you can gain a better yield by investing in foreign currency bonds, and the act of hedging back into your native currency actually earns you money “He stated.
Hayes further stated that as a result of the merger, more institutions would adopt ether because the proof-of-stake mechanism is deemed more environmentally friendly than the allegedly energy-intensive proof-of-work system.
“This fact [ETH’s post-merge bond-like appeal], combined with ETH 2.0’s [environment, social, government]-compliant label (another stamp of intellectual ossification), and protocol metrics that are more appealing than the cadre of layer 1 [or base] “ethereum killers” makes ETH supremely undervalued on a relative basis vs. Bitcoin, fiat, and other [layer 1] competitors,” Hayes said, adding that MicroStrateg (BTC).
Following Hayes’ positive projection, the ether options market has seen more activity in higher strike call options. Over the weekend, around 7,000 contracts of the $10,000 ether December expiry call options changed hands, according to Patrick Chu, director of institutional sales and trading at over-the-counter tech platform Paradigm.
A call option grants the buyer the right, but not the duty, to acquire the underlying asset at a fixed price on or before a certain date. A call buyer is implying that he or she is bullish on the market.