Will Bitcoin Hit 250k in 2024? - A Passive Arb

Yo

This is quite a good free-money trade for a small trader. It can be done manually from a phone, and if bitcoin stays around where it is, you'd probably only need to check it once every day or few days.

Benchmarking against % returns with an arb doesn't really make sense if it's highly capacity constrained, so in this case the benchmark is how much money you can actually pull out of it.

Depending on if good volume comes into these markets over the next few months, and how much work you wanna put into optimizing every piece, I think it could be a few grand.

While the price of BTC and the flow coming into the exchange are out of your control, I've found after doing quite a few of these trades that you want to get setup in a position to jump on an opportunity when you see it.

The halving is a big catalyst that should bring some volatility to Bitcoin and volume into these markets, so being ready to go might be good if you're tryna do this kind of trading.

Wat iz de tred?

Right now there's a cross exchange arbitrage between the "Will Bitcoin hit $250k in 2024?" market on Polymarket and the same market on Kalshi.

We can see the prices are out of line.

You can immediately buy 200 shares of the No outcome on Polymarket at 87c, and 200 shares of the Yes outcome on Kalshi at 7c.

Kalshi Transaction Costs scale parabolically with the following equation:

Round up to nearest cent (0.07 P C (1 - P))

P being the price of the shares and C being the number of shares

Polymarket doesn't have transaction costs.

That means were you to take these shares right now, the trade has the following payoff profile:

• Polymarket Leg Cost = $174

• Kalshi Leg Cost = $14.92

• Value at Expiration = $200

• Riskless PNL = $11.08

Or in annualized return terms, 7.55% return.

Being that treasuries pay 5%, and tech stonks pay 1000000%, not great. A good sign that there might be a bigger opportunity tho.

How can we pull more money out of this?

TLDR: I think Polymarket is overestimating the likelihood of Bitcoin hitting 250k. This is based on the implied probabilities in the BITO options (from the post a few weeks ago), the odds on Kalshi, as well as the fact that all the crypto stuff is priced crazily right now.

There are risk free, high return (albeit capacity constrained) ways to trade this that might be good for a small account. There are also more risky, higher expected return ways I'll go into.

For the purposes of this being a properly in depth guide, the section below is gonna go a little into exchange incentives and rewards.

It's boring and highly irrelevant if you just wanna get a quick gamble. However if you're someone who's is tryna do the most, and be setup if/when a ton of flow comes into these markets, it will help you in a big way.

Boring details for doing this trade perfectly optimally (you can skip this)

Below are the volume tiers required to qualify for Kalshi's rebate program.

They want people to trade on the platform, so they pay you if you do enough of it.

You can see you have to trade a minimum $12,500 in volume in order to qualify for tier 1, which pays a 0.625% rebate.

That means if you trade $12,500 in a week, they'll pay you ~$78.

Looking at the graph above, we know very expensive and very cheap shares on Kalshi have the lowest transaction costs, so you might be thinking:

If I get paid based on volume, I can buy every 97c share until I hit $12,500 and collect $78 basically risk-free.

Unfortunately, if you're just taking $12,500 (IE coming in and buying someone else's resting shares), you'll pay more than $78 in transaction costs, so there's no immediate arbitrage opportunity.

However, if you can trade a certain amount of volume as a maker, (IE placing orders that don't immediately match, and having other traders come in and match with your shares) there is a point at which taking random expensive shares to hit the rebate threshold economically makes sense; even if you're paying transaction costs.

I promise this is relevant to this specific arb lol.

Above you can see net rebate earnings plotted as a function of weekly maker volume assuming we backfill the remaining (12500-makervolume) with taker volume that we're paying transaction costs on.

If we trade 125000 in volume just buying the most transaction-cost efficient 97c shares, we earn our $78.13 rebate, but pay away $128.87 in transaction costs, netting a loss of -$50.87

Around 5000 in maker volume is the cutoff where after that point, if you get to the end of the week without hitting 12500 in volume, it makes sense to just backfill with 97c shares to get above 12500.

Also, ideally if you come to the last day of the volume week and realize you've cleared the threshold where backfilling the remaining volume to qualify for a rebate will net a profit instead of a loss, you'd like to try to buy shares that seem +EV.

For example, there are often cross-exchange arbitrage opportunities that don't pay enough in annualized terms to be worthwhile in isolation, but when factoring in your rebate earnings it's a decent trade.

These details prolly seem complicated and unimportant, and they kinda are right now.

However, if/when Bitcoin starts mooning again, a lot more money will flow into these bets, and knowing this stuff will literally make you free money.

How Polymarket Pays Liquidity Providers

Polymarket has a different structure that makes it way easier to print money as a liquidity provider.

Instead of requiring people to hit a qualifying volume threshold, there is a pool of rewards that traders compete to get each week. This reward pool is around 70,000 USDC across ~200 markets.

This is a pretty good guide as to how this reward system works. You can put yourself to sleep reading that if you want, but the important takeaway is this:

You can earn money placing resting orders to buy Yes and No shares on Polymarket even if you never actually match.

This is different than Kalshi, where you get paid based on traded volume, not just placing resting orders.

There is an art and science to milking these rewards which I'll get into later in this post.

Back to the arb

As I mentioned above, the easiest and safest way to trade this is just a basic cross exchange arbitrage.

You'd monitor the prices on each exchange, and buy the yes on one, and the no on the other when they get out of line enough for to make you a worthwhile return net of transaction costs.

In practice I wouldn't do this as there's not enough money in it to be worth the time right now.

Here's a few better ways to trade it imo.

1. Make on Kalshi take on Polymarket

This is another risk-free way to trade this.

You can place an order to buy 6c No shares on Kalshi.

Doing this will put you at the top of the book, meaning anyone coming in taking the other side of this bet will match with your shares.

If any of these shares match, you can immediately buy the same amount of 87c Yes shares on Polymarket.

Assuming you can build up a 20,000 share position

• Polymarket Leg Cost = $17400

• Kalshi Leg Cost = $1200

• Value at Expiration = $20000

• Riskless PNL = $1400

Or a 9.71% annualized return.

Building a position that big would take a minute, but isn't unrealistic, especially if the halving makes bitcoin volatile and drives a lot of volume into these markets.

Usually I wouldn't want to leave large resting orders like this unmonitored overnight, but being that this bet is so far out of the money, the prices aren't going to move meaningfully in such a short time period.

This is looking better now, but I don't think it's the optimal way to do it.

2. Don't be a loser and just gamble

Hear me out here:

Why do all this complicated bs when you can just leave a fat bid on Polymarket and fuck off?

That has to be the overpriced side right? I'm basing that on a gut feeling that "Bitcoin is just not gonna go up there dawg" (which historically has been the death of many Bitcoin short sellers).

Right now I have $5160 of resting orders sitting at the No 87c price level. These orders are earning 14.14% of the 200 USDC reward share each week -> 28.28/week. -> 28% annualized return on capital not considering compounding.

You can check your % of scoring liquidity and estimated USDC earnings in the Rewards tab on Polymarket.

There is an art and science to milking these rewards. Here's how I'd think about this bet specifically.

Kalshi prices imply a ~94% chance of Bitcoin not hitting 250k in 2024 -> we can immediately buy the No shares on Polymarket for 87c -> our trade has an expected value of 7c/share.

For anyone wondering, if we take the Kalshi odds as our estimation of this bet's fair value, the mathematically optimal bet size is 46% of your bankroll.

Looking at the available liquidity, were we to take all 13356 No shares at 87c, our EV is $934.92.

Now instead of just matching with those 87c shares, what if we instead placed an equally sized resting order on the best bid at 86c.

Now if we match, we're squeezing another 1c/share EV out of the trade.

We're also collecting ~30% of the 200 USDC reward pool each week.

At the end of the day, those two in tandem likely net out to more money than just buying the 87c shares.

There's no real right or wrong answer in executing it, because the mispricing is really what matters. However, playing around with that EV from different execution methods shows you that there can be an edge in executing optimally.

I'm already jacked to the absolute tits in No shares at 85c, but I also have some resting orders on the bid that are earning rewards.

I feel decently confident Polymarket is mispriced, but there are good counterarguments to that idea. Doing the bet in this unhedged manner could destroy you if you were wrong.

• Betting against Bitcoin on a gut feeling is stupid, and has killed a lot of bears in violent fashion

• There's wayyy more liquidity on the Polymarket side, which prolly means we should have more confidence in that estimation of fair value

These are fair arguments, and if it weren't for the implied probabilities in the BITO options being different than Polymarket, as well as just all the craziness in crypto at the moment, I wouldn't be as jacked to the tits as I am.

I like gambling.

3. Do all of the above and more

Depending on your view of where Bitcoin might go this year, right now there are opportunities to structure other risk free bets that payoff in a big way if they hit.

For example the "how high will Bitcoin get" market on Kalshi also has another level where you can bet that it gets above 150k at some point.

If you place a resting order to buy Yes shares at the 13c level.......

If someone comes in and matches with those shares, you can immediately buy the same amount of 87c No shares for the "Will Bitcoin hit 250k this year" bet on Polymarket, and have a pretty nice payoff profile.

For example, let's say you match on 1000 shares on Kalshi, and immediately buy 1000 shares on Polymarket. There are 3 possible outcomes:

Bitcoin never hits 250k in 2024

• Polymarket leg = +130

• Kalshi Leg = -130

• Net PNL = 0

Bitcoin goes between 150k and 250k in 2024

• Polymarket leg = +130

• Kalshi Leg = +870

• Net PNL = +1000

Bitcoin blows past 250k in 2024

• Polymarket leg = -870

• Kalshi Leg = +870

• Net PNL = 0

Ultimately you want to spread orders around to as many bets as possible to capture as much incoming flow as possible.

If you're willing to take the time to figure out various arbitrage relationships and see where you need to buy/sell shit to break them, there are big opportunities right now. I think the halving will bring more liquidity into these markets which hopefully means more money to be made.

GL to all :)