Arbitrage is the phenomenon where you profit from the price difference of an asset in different markets. For example, Sam Bankman-Fried has made a lot of money with the South Korean Kimchi premium. By buying Bitcoin elsewhere and then immediately putting it away for more money in the South Korean market. We are now seeing something similar happening with Ethereum and Staked Ethereum.
Staked Ethereum at Lido Finance
The value of Lido Staked Ethereum, a token that normally trades in a 1:1 ratio with Ethereum, has now fallen significantly below the value of Ethereum. On Binance you now pay $1,171.22 for Lido Staked Ethereum, while Ethereum itself sells for $1,349.11. In theory there is therefore quite a bit of money to be made. The only thing is that you have to wait for Ethereum 2.0 before you can convert your Lido Staked Ethereum into Ethereum.
By doing this “arbitrage trade” you are therefore betting that The Merge will actually take place, that Lido still exists at that time and that the Ethereum price will still be at the right level by that time. Today, Ethereum is back up another 10 percent, so things seem to be going well in that regard. There is a lot of enthusiasm about The Merge, which has done the price well in recent days.
Similar arbitrage opportunity to Bitcoin
Interestingly, Bitcoin currently has a similar arbitrage opportunity. The Grayscale Bitcoin Trust (GBTC) is currently trading at a 30 percent discount. That means the value of the fund’s shares is 30 percent less than the value of all the Bitcoin the fund holds. A strange situation, since at GBTC you can buy Bitcoin with a discount of 30 percent on the current price.
In fact, if you choose to do so, you have to hope that Grayscale’s spot Bitcoin ETF application is approved. Is that the case? Then there is a good chance that the discount will disappear and the shares of Grayscale will crawl again towards the actual price of Bitcoin. So far, however, the Securities and Exchange Commission has not been eager to allow a spot Bitcoin ETF. In order to achieve this, Grayscale is now investigating the possibilities of starting a lawsuit.