If it is possible and profitable, it is probably
Is the Ethereum merge going to be gamed on Binance
Funding rates on Binance Futures are plummeting
I will look at the possibility that gaming the ethereum merge on Binance is responsible for this fall
This is purely guess work, I am open to reasons this will not work and to other explanations
It revolves around how Binance plan to deal with a potential Ethereum split
And how someone with enough funds could influence this
I am concentrating on Binance as it is the largest exchange
update: the split coin is already trading as an IOU on some exchanges including Bitfinex
I will keep this post short mainly because it is mostly going to be a completely made up scenario that may have no value what so ever. I will let you decide.
Binance funding rates plummeting
First I would like to draw your attention to Binance futures and the funding rate for the last day or so.
It has taken a dramatic turn down. Without getting to much into the weeds on how this works, there are 3 things that could cause this.
People are selling a lot on Futures
People are buying a lot on Spot
People are selling on Futures and buying on Spot
First lets be clear there are many possibilities as to what is happening here, I am going to put on my tinfoil hat and go down one possibility. Which is that people are buying spot and selling futures.
Gaming the Ethereum merge on Binance
A couple of days ago Binance announced how they would deal with the Ethereum merge and a possible chain split creating a competing coin, ala ETC back in 2016 (wow is it really 6 years ago).
Basically if you hold Ethereum on Binance or elsewhere you will get ETH + whatever new coin is created. At the same time you can be short ethereum on Binance Futures and you have no responsibility to pay for the created coin. This leads to an imbalance.
Someone could buy 10 ETH on spot and sell 10 ETH on futures, then no matter the movement in the price they would have a net zero position. If a split occurred they would gain the new coin, let’s call it ETHW, with no risk or cost except the funding fee. I will look at the cost of the funding fee below.
In this scenario the person or people doing this would want the new coin to be as valuable as possible, as that is were any of there profit would come from. So you could expect them to push the split aggressively. Note that ETC was worth 20% of ETH at the start and even today it is worth over 2%.
Chart of ETC Vs ETH from Coingecko
How it could work, what profits could be made, and what risks are there
First buy ETH and sell ETH futures, I believe we may be seeing this now.
Push for a viable split chain, we are seeing some of this from POW miners
Sell the split coin, likely as soon as they can
Profit
The profit made would be what ever price the split coin got to minus the cost of the funding fee. Both of these can be put in terms of a percentage of ethereum.
Looking at ETC as an example the split coin could be worth 0% - 20%, as someone that was around during that split I can say there does not seem to be as much support for this split as that one, but time will tell. Let’s call it 5% for a few days, enough time for people to dump.
So then the funding fee, currently it is costing about 0.08% a day to short ETH and there is about 20 days until the merge so that could be a cost of 1.6%. Although I am expecting it to be lower.
My best guess a profit of 3.4% but remember you could leverage this up, let’s say 3x leverage, so a theoretical profit of 10%.
So what could go wrong? The split may never happen, Ethereum has had many hard forks without a split, this may be another one. Also the funding rate could continue to fall and end up costing more than the split coin even if there is one.
Final thoughts
None of this means ETH has to rise or fall around the merge, but I will note that even though ETC took 20% of ETH’s value, the value of ETH rose more than 20% after the closure of the split happening.
Personally I will not be trying to take advantage of this opportunity, it just feels a little sleazy to profit from a split that I have zero belief in. I will simply continue to hold the ETH I do, and continue to watch the drama unfold.
There are many different reasons we are seeing the funding fee fall, including but not limited to random variation, it does not have to be this conspiracy theory.
So what do people think of my theory? Do you have any of your own? Let me know in the comments.
I may make this post into a video so if you would like that feel free to subscribe to my youtube channel.
In future you can expect more posts about stocks as well as crypto.