Arbitrage Opportunity: Cathie Wood’s ARK Investment: How Cryptocurrency Investors Could Reap Profits Thanks to Celsius Debacle | news

• Celsius’ freeze on interest rates accelerated cryptocurrency sales
• ARK Invest sees arbitrage opportunities
• The spread between Lido Stakes Ethereum (stETH) and Ethereum (ETH) could promise gains

Profits from arbitrage were the order of the day in previous stock market history. But the global capital market has become so liquid and information-rich in recent years that many economists consider risk-free profits almost impossible for the normal retail investor. However, Cathie Wood’s investment house, ARK, sees an interesting exception to this rule, namely in the cryptocurrency market, in the haze of the recent Celsius shock.


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The drama surrounding the Celsius cryptocurrency lending platform

On June 13, Celsius announced that it should stop paying interest, at least temporarily. Since then, customers have not been able to withdraw their crypto assets from the platform. In doing so, Celsius wants to buy much needed time to pay off outstanding debts and get out of too risky positions. GlobalBlock’s Marcus Sotiriou believes Celsius is borrowing heavily to pay the ransoms, but could run out of funds in as little as five weeks. The head of the US Securities and Exchange Commission (SEC), Gary Gensler, also expressly warns against the promises of excessive returns on the cryptocurrency market, apparently alluding to the cryptocurrency lending platform Celsius.

Celsius also pointed to the plight of the cryptocurrency market as the official reason for the difficult step. Thousands of investors hoping to earn up to 17 percent (6.2 percent on average for Bitcoin) from holding their long-term cryptocurrency holdings fear for their cryptocurrency deposits. But the news went much further: Celsius’s temporary capitulation, like Coinbase’s announcement that it would lay off 18% of its workforce, was interpreted by cryptocurrency investors as a sign of a crypto winter that had already arrived. The result: Bitcoin, Ether and Co. were sold out en masse. Despite the weak global cryptocurrency market, you can currently make decent profits in this segment – at least that’s the view of analyst Frank Downing, who works at Cathie Wood’s firm, ARK Investment.

Celsius has likely deposited 41% of the DeFi shares with stETH

Downing sees an interesting profit arbitrage opportunity thanks to the Celsius debacle, which is a profitable trade made risk-free thanks to the simultaneous exploitation of rate, interest rate or price differences between two similar products. To understand this correctly, you need to understand the Celsius business model.

Celsius promises institutional and private investors an interest payment while storing their respective cryptocurrencies. Celsius can pay this interest because the bank-like company mines cryptocurrencies itself and lends crypto shares itself. As reported by “Benzinga”, according to Downings, almost 41% of DeFi’s holdings are deposited in Lido’s Liquid Staking Ether (stETH) product, while 30% are deposited in Ethereum (ETH) Proof-of-Stake (PoS). . Against this backdrop, GlobalBlock’s Marcus Sotiriou points out that Celsius’s biggest problem is its $ 1.5 billion stETH position, which if it leads to customer redemptions could result in the lender being deprived of funds. But what exactly is a stETH?

As “Block Builders” explains, stETH is an artificially formed token that reflects Ethereum in staking. When you bet on Ethereum 2.0, sums of billions are invested, which in reality will only become available again when ETH completes an upgrade in the main network to version 2.0. Until then, with stETH, investors have a widely usable currency whose price should theoretically be close to that of ETH. However, many DeFi companies like Celsius are in deep crisis, forcing them to sell stETH massively. Consequently, the lower demand for stETH results in a lower stETH price compared to ETH.

ARK Investment sees arbitrage opportunities with stETH / ETH

And now comes the crux: While the PoS deposit is illiquid, stETH can be traded at 1: 1 parity in ETH on the open market, but only after the 2.0 merger, which is expected to take place in six to twelve months. Downing notes in a report that stETH is trading at a nearly 6% discount to ETH due to the sale of Celsius and other market participants. This, he says, creates an arbitrage opportunity for those investors willing to hold stETH until Ethereum allows post-merger withdrawals. In fact, according to CoinMarketCap, the price of a stETH is only $ 1,087.67 (as of June 21, 2022), while an ETH costs $ 1,147.70. According to Lido, the company behind stETH, parity of stETH with ETH is still safe, as every stETH issued is covered 1: 1 by ETH in the staking pool.

Whether an arbitrage profit between stETH and ETH is truly risk-free doesn’t seem like a foregone conclusion given the massive crypto upheavals of the past few months. Investors who believed Terra’s claims suffered a total loss of their invested capital in the UST Terra stablecoin and associated Terra LUNA coins. Lido, like Celsius, will still have to prove that its business model is more sustainable than Terra’s. editorial staff

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