Marcus Thielen (4:21)

Yeah, so of course the interesting aspect is really that actually the volumes have increased and the volumes are actually relatively constant now. I think we're trading actually around a billion dollars now per week. So that's quite elevated. And it's almost like as when Bitcoin started to decline from, you know, 100, you know, 25,000, you know, that's when really the volumes and the activity started to increase. So the number of users actually increased from 70,000 to almost 250,000 again per week. So these are actually really big numbers. A lot of people are involved and of course it has to do with that culture and Pulley market, you know, together raised around $3 billion during the last couple of weeks. So there has been a lot of, you know, marketing firepower really raised. And I think that's when we look into 2026. You know, a lot of the stuff is on the horizon that it's going to broaden out. And I think more investors and more traders are actually using the platform, you know, to hedge some of the economic risk, some of the macro risk and just kind of like, you know, to speculate, but around 90% of all the volume is still sports betting. So we on the crypto side, it's really like a small niche, but nevertheless it's growing. And I think it's quite interesting when we look at it from, from various aspects. So I would say we are, we are still at its infancy because, you know, these platforms weren't really, you know, anywhere a year or two ago. Volumes really started to pick up only really after the Trump election. That was the first, you know, huge push. But I think when we look at, you know, last month's, you know, Activity, really, You know, how many users actually visited those platforms? You know, as a. As a comparison, we have around 40 million users visiting Robinhood. 30 million. I think it's like 32 million for Coinbase and we have nearly 20 million for Poly Market. So it's definitely where, you know, these prediction markets are becoming more interesting from a user perspective and attracting a lot more volume on all sorts of things. And I think that's where we are in the beginning. And when we enter 20, 26, a lot of this stuff is moving, you know, higher. And it's, as you said already, you know, Gemini just won a prediction market license as well. So the competition is heating up and a lot of people want to kind of, you know, go into the space too.

Laura Shin (6:36)

And I just wanted to ask you about, well, what seemed like a connection that you made. You said that just as the price of bitcoin was going down, that trading in prediction markets was going up. Are you implying there that some of the people who had been trading bitcoin are now switching to trading in prediction markets? Or, like, how would you figure that out?

Marcus Thielen (7:01)

I mean, it just. I think it just seems a coincidence. I think it would be really, you know, far stretched that you have suddenly people, you know, turning their back on, you know, crypto exchanges and suddenly trading crypto or other trades really on. On prediction markets. I think that's sort of like something that we try to look into, we try to figure out, but it's really not the case. And when we ask, for example, our subscribers, not too many are trading. I think a lot of people are interested in it. But also the volumes are not necessarily there. A lot of the contracts, a lot of the bets are relatively small, so they don't really have the liquidity size that, you know, we are used from the crypto markets where, you know, volumes are 100 billion, you know, 200 billion, 300 billion, sometimes even on. On, you know, massive markets. And it's. It's still a very niche market, but nevertheless, I think there are some interesting opportunities that can be found. But it, nevertheless, I think it continues with the gamification of, you know, financial markets. People want to be entertained, and it's just a matter of, you know, how you approach the markets from an entertainment or from a probability perspective. But nevertheless, it just broadens out and it's just sort of another tool. We can look at it from, you know, from historically how people, for example, arbitrage various spreads, various products. And that's how we kind of approach this, this exercise, Betty, to Look into prediction markets. Is there a way to structurally arbitrage certain traits or, or not?

Laura Shin (8:24)

And you know, out of curiosity, like, it sounds like you trade both, you trade the crypto markets and prediction markets. How would you characterize the difference in terms of, you know, trading in those two types of markets?

Marcus Thielen (8:39)

So of course, you know, I think what a lot of people are not really aware of, but prediction markets are sort of, you know, exotic option trading, you know, strategies. It's really, you know, about the probability and understanding the probability and really being fast with, with the news. And I think it's, you know, more determined outcomes. It's really like a yes or no. It's not halfway. It's, you know, one party loses, another party wins really with of course, sometimes the exchanges in the middle versus of course with assets. You know, on crypto exchanges, like everybody can win who has exposure to it. So I think it's of course a very different, you know, narrative. It's a very different, different approach. And I would say these two are, you know, vastly really different. But I think it's really the matter of, you know, how to really approach the prediction markets because again, you know, I think in a hardcore option terminology, it's really like one touch barrier options that people need to understand how to price them and the probability of those factors. And not necessarily, you know, in crypto, buying into the narrative, buying into the theme or, you know, the story really. And I think that's kind of like really the big, the big difference. But again, I think for sophisticated traders, which you have on both, you know, venues or in both kind of categories, I think they approach it, you know, very similarly. But of course, everybody is aware that a lot of the crypto exchanges have their own, you know, internal trading teams or treasury teams or, you know, liquidity providing teams, you know, they might be affiliated or not. You know, of course a lot of the stuff has come out, you know, in the aftermath of the last kind of like two, three years really, you know, how these exchanges engineered liquidity initially, you know, because they needed and a sophisticated market maker on the other side. It's not really possible to match retail against retail on day one if there's no liquidity. And without liquidity, nobody really trades on exchanges. And I think we have seen this, you know, with the early days of, you know, of, of BitMEX, where I remember Arthur Hayes was, you know, giving presentations in 2015 in Hong Kong, you know, presenting. Basically I have all these Korean retail investors that are buying leveraged futures, you know, with 200% implied, you know, volatility of funding rates really. And he wanted, you know, institutional traders on the other side to really arbitrage the market. And I think here it's very similar where these trading teams and I think what a lot of people are also not aware of that there are also sophisticated trading teams on Polymarket on culture. Some of them have their own team, some want to build their own trading teams. And these are people that's doing this 24 hours a day, really and really sophisticated. And I think that's where the similarity is a little bit in building liquidity, especially because there's so many, you know, unique contracts that people can trade and unique bets. But you still need market makers to, you know, be willing to take the other sides because otherwise you would not attract the flow. So it's really kind of the, you know, the, the patient market maker versus the impatient taker really. And I think that's a little bit similar as in, as in crypto. So there are some similarities here, but overall the structure is quite differently. So nevertheless, I think it helps for sophisticated players to move from one platform to another if there are arbitrage opportunities.

Laura Shin (12:02)

And so I want to ask about the two biggest players. You know, as we mentioned, there's a whole bunch of other ones getting into this space. But let's just narrow in on at least, you know, the competition as we see it now, which primarily is between Polymark and Kalshi. And you know, we kind of alluded to the fact earlier that very soon they will be competing head to head in the US The Polymarket app is sort of in the US is sort of just rolling out. You know, it's like in a beta period. Polymarket raised $2 billion at a $12 billion valuation. Kalshi raised 1 billion at an $11 billion valuation. How do you kind of handicap the two companies in terms of their relative strengths and weaknesses?

Marcus Thielen (12:49)

So you know, the key difference is that Poly Market is really, you know, a crypto based platform and, and on ramp is, you know, very, very quick or opening account is, you know, super fast. I think for non US investors. You know, somebody was just sending me a screenshot these on the waiting list number 240,000. So there is a lot of people wanted to onboard versus of course if you're not based in the US you onboard, you know, it literally takes two minutes and you can fund your account with cryptocurrency. And again this whole process, you know, it's a similar playbook as some of the crypto exchanges. In the early days used to do, you know, all you need to do have is really an email account and then basically you get a security code and then that's it. And then you locked on and then you have a wallet address and you can fund the wallet with a different, you know, cryptocurrency or with a stable coin. And then basically you can, you know, place bets. And this whole process takes like less than two minutes versus, you know, if you of course, regulate it in the U.S. if you're trying to be in the U.S. you know, the process might take a little bit longer because it has a long backlog. And I think that's, you know, one, one, one difference really. But it's also in terms of, you know, liquidity. I think that's how institutions look at it. It's some type of bets that people look at it. As I was saying, around 90% of the bets seem to be really on, on the sports betting side. So everything else from, you know, event contracts, you know, or crypto ideas that people are trading on is relatively small. And of course, when we go into the elections, I think around $3.7 billion was, was, you know, was, was at stake really at the US election. So that's when really the market heats up. And I think that's where they sort of like overlap really on the sports side. They overlap on, on some of the, you know, political outcome bets. And I think the differentiation will be, I think, less, less and less. I think it's really in terms of like the how some of the bets are being rephrased, let's say, on the crypto side. But nevertheless, I think they will just converge wherever, you know, wherever the volume will go. But I think people can also, of course, put up their own bets in the sense you can propose your own bet. So it's just a matter of, you know, you coming up with a great idea and it's getting, you know, it's getting approved and then you can place a bet on both sides and you know, if there's different odds, you can place a. Basically arbitrage the market there as well. So there are different, you know, there are differences in style in regulation right now, but, you know, but this is going to converge and because they're both looking for, you know, the US market, which is of course is the biggest market there is.

Laura Shin (15:26)

And what about these different new competitors that we mentioned? So Gemini has its Gemini titan. Robinhood just had an announcement with Susquehanna. I forget what month this was, but just a few months ago, limitless Had a controversial token launch. I'm sure there's others. But I wondered how you kind of look at these different new entrants and which ones you think could be viable competitors.

Marcus Thielen (15:55)

I mean, I personally think it's really these two big ones, I think they dominate everything because in the end I think it's all about, you know, liquidity and volumes and attracting the volume like very quickly. I think we have seen this on the cryptocurrency exchange side as well, where really volume is key and unless there is, you know, like a regulatory event that for example, of course, you know, heard some exchanges, you know, in the past, you know, from Mount Gox to, you know, Bitmex and so on. But we have seen how Binax has grown and Binance with their volumes has attracted of course more and more and has manifested themselves really as the leader. And I think everybody else needs to really come up with really smart strategy to attract some of the volumes. I think we have seen this how some exchanges have tried to move into the option space and win their market share. But I think it's very similar where if you have a smaller prediction market, you need the volume and for the volume you need some professional traders you mentioned already, Susquehanna, who are very active, of course, on the professional making side. And I think they're working with various of these exchanges because, you know, that's really their role from a market maker side. But it's really, you know, how do you engineer the volume? And I think this has always been the issue for crypto exchanges and I think this will be the same for these prediction market exchanges.

Laura Shin (17:22)

And so at the moment, like between the different competitors, who do you think is ahead in terms of volume?

Marcus Thielen (17:31)

So of course it depends a little bit on contracts. But I think, of course, you know, Poly Market is a little bit ahead. Again, if you look at some of the monthly visitor numbers, you know, for last month it was around 5 million for Kalqi and it was 19 million for Poly Market. So I think there is of course, you know, a larger lead and I think that has to do, of course with Kalchi was focusing a bit more on US investors versus pulling market is of course global. As I was saying, the onboarding is a little bit easier. There have been, I think they have a little, you know, leg up really over the last kind of like, you know, one to two years being, you know, speaking at some of these, you know, crypto conferences or other events and being a little bit more out there maybe in terms of marketing. That's why they have a, you know, a little bit, you know, step ahead really. But in the end, you know, as you said, the valuations is very similar. You know, culture has probably, you know, a better revenue model because they're charging a fee, you know, that is a little bit elevated for some or, you know, versus Polymarket is, is a little bit, you know, less fee generating right now. But I think they can because it's a crypto exchange. They don't need a lot of the over overhang and again, they have not really focused on the US where maybe there's, you know, a lot of, you know, a lack of compliance that, that wasn't really that important. But of course there's all changes now because they're entering the US market. So I think there has been some differences, but they're all going to converge. It's just really like a, you know, a question, you know, who do you, you know, what is really their strategy? To win, to win more users and of course in to win and to partner with these, you know, bigger market makers. Because again, it's all about liquidity. And that has always been the big problem for cryptocurrency currency exchanges. If there's no liquidity, then there's no retail investors, then there's no interest. And that's like the, you know, the, you know, how the ball really rolls down the hill. And I think it's very similar here as well.

Laura Shin (19:28)

Yeah, and this might go to the controversy that was on Twitter this week, but when I look at how the block, you know, it has different bar charts that show the volume and it actually looks like in recent months, like literally in the last two months, Kalshi might have overtaken Polymarket. But I'm not sure exactly how this is being calculated because, yeah, like just I'm not going to get into all the details on that, but for various reasons, some of the charts, like I would have to dig into it a little bit more to really understand what's going on. But yeah, maybe some of it also depends. Like, I think, you know, Cal, she's leaning more into sports. So some of it might have to do with things like that. But I did also want to ask, you know, some of these markets are structured differently. Like you read about this one of your blog posts, you know, some of them use traditional limit order books. Some of them have a different structure. Can you talk about that and how that might kind of influence how a user might think about, you know, trading on these?

Marcus Thielen (20:34)

I mean, from an end user perspective, I don't Think it really matters too much. Right. So they're using the limit order books, as you said. So it's really about being patient makers versus impatient takers. And it's really how the market makers would basically spread a bunch of orders and just, for example, just wait that the retail investor would just hit the bid basically or lift the offer really and just, you know, just place the order and literally just pay the spread. Because sometimes the spread is wide when there's not a lot of liquidity. This again, it's very similar to crypto exchanges. So you need to have a lot of, you know, market makers basically, so the liquidity is relatively tight. And I think that's, you know, from a user perspective, it doesn't really matter too much as long again, as long as there's volume, that is really the key because otherwise you cannot really execute. Otherwise the spreads are just too wide. And of course, every time, you know, you, you, you, you cross a spread, basically you lose money. And I think that's sort of like, you know, very key how, you know, how these prediction markets really need to, you know, work on this. But you know, as we have seen that, you know, there's been some professional partnerships being being done with market makers. They're also, I think culture has their own culture trading team that are sort of like, you know, a market maker in the background. Of course there's affiliated with the exchange and you know, polymarket is trying to build this as well because again, volume is key. So it doesn't really matter too much from, from a user perspective, it's a limit order book. But, but that's like the, you know, the standard, you know, as we have seen. But that's also of course what we have seen that you know, the Robinhood, they're receiving a lot of money, you know, with a payment of order flow, you know, on the stock market. So I think there, there are some similarities here. And of course the volumes are still relatively low with a billion dollars a week, but they might increase. And I think we have seen, for example, you know, token terminal has, you know, data, you know, in terms of the volumes where we can compare it, you know, if Kali is ahead or if pulling market is ahead. And maybe it has to do with the NFL season that has just started where people are betting more on those games versus Bully market, maybe on other factors because again, the user base is more global and maybe they don't care too much about US sports in the sense that's how I would kind of assume is probably the volume a Little bit different. But I think the bottom line is really that they have raised $3 billion, which is a lot of money, and they're really going for expansion in the U.S. so I think there's a lot more stuff happening than next year.

Laura Shin (23:18)

All right, so let's talk a little bit more about next year for a moment. Just because we've set the stage with these two main initial competitors, all these other new entrants. One of the events we didn't talk about, but is important that we should discuss is that polymarket will be launching a token Poly. Interestingly, they're going to do it via an airdrop, which is a mechanism that's not actually favored at the moment. But I'd be interested to hear how you think Polymarket can make that airdrop a success and use it to help them cement their dominance.

Marcus Thielen (23:58)

Yeah, I think as we have seen in the past, I think airdrops have become popular. Of course some of them had great success or not. But I think here the interesting aspect is really that polymarket is a crypto exchange. It's all really on chain and that's where a, the data can be actually analyzed quite well. The, you know, the bets can be analyzed. We can see, you know, where the bets are being placed. But I think it's also like a key factor, you know, was a key value proposition for us to kind of like write, you know, the report or write the reports around it that, that the airdrop is coming. I think it has been confirmed by, you know, by the CEO, founder, has be concerned by, confirmed by the head of growth. So the airdrop is coming. And I think, because everybody can simply, you know, open, open an account there, so you get a wallet address. So the airdrop can be just, you know, easily, you know, find its way into your account. And I do think it could be quite, quite successful because, you know, people are looking for, for airdrops, right? That's one of the key strategies for, you know, for example, to invest the BNB token because you would have made another 10% this year just simply through some airdrops if you would have sold them the first day. So I think people are looking for these sort of free yield opportunities. And definitely from a crypto perspective, that's kind of, I think people would favor, you know, the, the pulley market platform because if you trade there, you know, you, you actually, you qualify and because the volumes are, I think, concentrated among a few large players. So even if, let's say you trade, you know, I think we looked at this and we read some, you know, other research around this. If you have traded like $50,000 worth on polio market, you would have been among the top 1% of the players. So it's almost like, I would say relatively easy at least until now to be among the larger players and then qualify for this airdrop. And I think it can be quite valuable because again, what he also said, the competition is really heating up and I think you want to reward your users and in the past it has always been very favorable if you reward your users. You know, we have seen this, of course, with Hyper Liquid where, you know, I think it started almost like exactly a year ago, you know, with the, with the, you know, with the token launch there. And I think then I think, you know, volume started to increase and go in sync and this can be here as well because everybody who holds the token will suddenly become, you know, almost like, you know, a marketing person for the, for the protocol. So that's why I think it's quite interesting and the value proposition, and I think it's going to come for sure and I think it's going to come sooner than later. So I would assume it's probably going to come, you know, end of Q1 next year because I think they want to get a leg up. And again, they are already crypto native, so it shouldn't really take too much. So that's why the time to get involved, the time to look at a few things is really now, we think.

Laura Shin (26:52)

And do you think that we should expect that some of the other platforms will do the same? Launch a token?

Marcus Thielen (26:59)

Well, I, I personally don't, don't think so because, you know, it takes, it takes actually a lot, a lot to become really a crypto native platform. And I think that's really their, their, their big advantage. Right? So I mean, if, if culture suddenly, you know, launches a token, but they're not really crypto native, I think it would be a lot more, you know, difficult to kind of tie into, you know, what is really the advantages. Are there going to be, you know, buybacks? Are they going to be, you know, reductions on trading fees or anything versus, you know, on a crypto native platform, I think it's a lot easier. And this is what we have seen, you know, in the past, how, you know, tokens from exchanges, you know, have actually been used for, you know, rebates or they have been, you know, for other special treatments, you know, for higher tier exposure. And I think in the past, you know, I think when you accept, of course, the FTT token. But, but if you look at, in general, crypto exchange tokens have done quite well, right? I mean, that's kind of like the, the interesting aspect here, you know, that, that I would also draw a parallel. I mean, when you look at, you know, I mean, you can name like endless tokens really, but normally crypto exchange tokens are doing well, so it's worthwhile having exposure to them. And of course, if you get them through an airdrop, you know, that's probably not a bad idea.

Laura Shin (28:18)

Okay, so I'm just drawing a blank. The only one that comes to the top of my mind is bnb. But what are some of the other successful ones?

Marcus Thielen (28:26)

Well, I think when you look at, you know, Big get has a, has a token, I think that has also done, you know, quite well. I mean, OKX has a token. I think you can look at a lot of the crypto exchange tokens. They somehow really have done, you know, outperformed especially. And almost like surprisingly this year, you know, there's also, you know, an exchange in Europe, I think it's called Whitebit, you know, I mean, I've never heard of it up until May this year. And then, you know, some of us flash in our systems and I think since May it is up like 100% versus the overall crypto market has like struggled. And I think the, again, the bitgate token has initially done, you know, quite well this year as well. So it's interesting really that this, that even in a market where, for example, altcoins have really struggled this year, that some of the exchange tokens, despite the potentially lower volume that some of the altcoins are, you know, having the exchange token have outperformed. And of course, you know, Hyper Liquid has done well from where it launched a year ago. Of course it has given back some, some now. But I think in general having it gives some sort of like exposure to the ecosystem. So, so, and I think that's why it makes sense. And you know, as you said, BNB has done of course, phenomenal. Well, you know, it's up, you know, a lot, of course, and users still generate, you know, revenues through some of these airdrops. And maybe that's also something where there can be like a permanent, you know, airdrop to some of these token holders. So I think there can be, you know, smart tokenomics here being structured and really help, you know, establish themselves at least in the crypto space. Again, you know, a lot of the trading is in sports betting, so that's a different market. But nevertheless, I think it's a niche market that can be like built out.

Laura Shin (30:12)

All right, so in a moment, we're going to talk about how it is that Marcus trades prediction markets. But first we're going to take a quick word from the sponsor who makes this show possible.

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Laura Shin (33:32)

You wrote a great series of posts on how to trade prediction markets. But before we get into kind of like all these strategies and everything just explain how the risks in trading in prediction markets differ from regular crypto trading.

Marcus Thielen (33:50)

So of course, you know, in prediction markets these are, you know, event contracts. So there is a definitive end to it. It's similar to option. And some of the, you know, the early days of the crypto futures where they had an expiration date, of course now everybody trades perpetual futures. But options of course have also like an end date versus you know, let's say altcoins are sort of like an option, an open ended option because as long as you hold it, you have the potential, you know, probability or chance really to make, you know, back your money or to really make an outsized return versus, you know, prediction market. There is a definitive end date. You know, some of them are longer, some of them are shorter. And the interesting aspect is really that the way how they work is really a probability based, so it's a barrier option. And you have to really understand what probability you sort of, you know, implying and where you're really buying it. I mean they tend to work that you buying a contract that is somewhere priced between, let's say $0.01 and $0.100 or between $0.01 and $1.00. And if you're buying it at $0.60, you're basically putting in a 60% probability that this event will happen, yes or no. And most of them are structured as yes or no events really. And I think that's how they really differ. And so you need to get really the timing right. So if you're for example betting that Bitcoin would reach a hundred thousand by end of the year, the bet is of course over, you know, on December 31st. But if, of course, if you buy Bitcoin, you know, you can hold it open end. And if suddenly bitcoin only reaches, you know, 100,000 on January 1st, you still can make money with your Bitcoin trade, but not really with the trade on, you know, prediction market because it would have expired. So it's really that these contracts are sort of probability option contracts and not sort of, you know, taking you know, a longer term view. Because also the probabilities can shift, right? We have seen this, of course, you know, when, when Trump suddenly was interviewing a new Fed chair or you know, this week, then the probability for, you know, for the highest candidate, highest probability candidate, you know, started to decline. So you need to be fast with the news there. I think it was the FT who came out with the comment that Trump is interviewing more people this week. And then the probability for Kevin Hasett, I think, dropped from 80% to 70%. And I think it took a couple of minutes. But of course, as a professional trader, they would sit there, see the headline, maybe adjust their book, reposition themselves, and, you know, can take advantage of it versus if you're only casual trading on, on, on these markets, you might see it, you know, a day or two later or wonder why the P and L has changed. And that's, I think, how, how professional traders really have an edge because they're in the news flow, they're in the volume flow and the liquidity flow, and they really can make a difference.

Laura Shin (36:44)

Okay, so let's talk about a specific post that you wrote called the Polymarket Bitcoin Trade. Paying 63% annualized with near certain odds. Explain what that trade is and, you know, how, how those numbers work, how it can be 63% annualized with near certain odds.

Marcus Thielen (37:04)

So 60, you know, percent annualized, it's around 4% from now until end of the year. So, and 4%, you know, seems for, you know, some crypto traders, you know, you know, maybe just a very small return, but of course, the returns can add up. And if it's just over, you know, over, let's say, three weeks, it actually, you know, analyzed quite well, especially if the capital can be moved around from, you know, from, from trade to trade. And I think the key thing really is to look for these, you know, for these certain certainty trades. And I think there's, you know, different strategies. We outlined, you know, 10 different strategies, you know, in our reports that people kind of could follow. But, you know, the, the one trait, you know, that you're referring to here is, you know, it's actually around the Bitcoin ETFs. So the question is, can the Bitcoin ETFs eclipse the inflows from last year? So will the ETF flows in 2025 be larger than the ones in 2024? And when, you know, everybody looks, of course, at the daily ETF flows, but if you aggregate them, last year ETFs attracted US$33.6 billion, and this year they attracted around $22 billion. So there's $11 billion difference. So what do you think is a probability that the Bitcoin ETFs will accumulate another $11 billion from now until year end, while they only have really accumulated 22 billion. So mathematically, we can look at this, we can calculate the probability. You know, we can run Monte Carlo simulations just like how we would, you know, structure, for example, like the option probability. And the probability is literally on, you know, on a simulation of 200,000, you know, paths forward is literally, you know, near zero. I mean, it's really like seven decimal points, you know, behind, you know, behind the dot here. So, but you can still pick up the 4%. So if you say, well, I don't think that the Bitcoin ETFs in 2025 will outpace those in 2024 because it would require another $11 billion of inflows. And we have, I think now we have 14, 15 trading days left, only we have the Christmas holidays. We know that, for example, since October, the ETF flows have significantly slowed down. We have around year to date, around less than US$100 million of inflows per ETF year to date, basically on average. But we would need $700 million per day, which seems to be unlikely. Which seemed to be unlikely if, you know, if Powell would become more hawkish during the Fed meeting, as everybody sort of like was expecting, that prevents, of course, institutional investors from investing. So long story short, it's really, the probability was, you know, was really near zero. Mathematically it's impossible, but you can still pick up the 4% by fading this trade. And I think there is a lot of those trades that we have looked at that seem, you know, mathematically impossible and, but there still can be, you know, some yield to be picked up. And that's kind of like how we approach the market.

Laura Shin (40:12)

Okay, so the next blog post that you wrote outlined a whole bunch of different strategies you use to make money on prediction markets without necessarily even having to have an opinion on the actual market or like, knowledge of the event, which I thought was super interesting. So let's just talk through all of them. So let's see, the first one is one that you called cross market arbitrage. Explain what that means and how you use it.

Marcus Thielen (40:41)

So if, of course, the probabilities on culture versus on pulley market are different, you know, for example, you know, US Election contracts, you know, I think on the midterm elections there will also probably be some bets placed. There's some bets placed on, you know, Fed, you know, who's the next Fed chairman. And of course, you know, those, those probabilities can, can adjust on one exchange, you know, quicker than on the other. It depends on the professional market makers, you know, on the players. It's a little bit, you know, more systematic and I think needs to have really, you know, fast in terms of like, trading capabilities and capital because they're not working as crypto exchanges where you can simply, you know, send stable coins to one. But that's one strategy. If the odds are very different on one, you potentially can hedge them out on another. And these are like very low role risk. I think when you go through the numbers, it's really, we rank them, you know, what is really the lowest risk to the highest risk. And I think we want to be in the lowest risk factors because that has actually historically proven to make more guaranteed money in this sense or with the highest probability. Because those whole moonshots trades, they rarely tend to work out. And I think the, the smarter traders, the market makers, they tend to be in the higher probability trades. And that's kind of like how we approach the markets.

Laura Shin (41:59)

And then the way that works is are you, since you don't actually know which way it will work, are you just betting the same amount of money in both markets or something, and then whichever one wins, you just end up earning the difference between the winning bet and the losing bet?

Marcus Thielen (42:16)

Yes, correct. But of course the culture, you have to factor in some trading costs that you might not have on pulling market. So there are some small differences between the platforms and they don't make it that easy. I think it's in one of the earlier days of crypto where it was also not so easy to arbitrage one market another. But arbitrage opportunities certainly exist and especially for example, we saw this in last year's election really, because you have also, you know, up until now sort of like different people may be trading on those platforms which might now converge with polymarket entering the US Market.

Laura Shin (42:51)

And I'm sorry, when you said that the platforms don't make it easy, are you like saying that they're intentionally trying to not make it easy?

Marcus Thielen (43:00)

Okay, no, I was just saying because with Poly Market you can, you know, transfer crypto and it goes like super fast and it's immediately in your account versus on culture. You need to, you know, transfer, you know, capital and you have to have to cap the capital there to take the bet. So it's not, you can, you know, it's not how the modern day exchange arbitrage on the crypto side works where you can immediately send USDC or USDT around.

Laura Shin (43:23)

Right. Okay. All right, so the next one you called endgame sweep or late stage arbitrage, what is that and how does that one work?

Marcus Thielen (43:33)

So of course, you know, one of the, you know, it's very similar as like the probability or the time decay capture really here. Um, I think you can almost, you know, put them in a, in a similar bucket here. But the end game sweep is what I would just you know, argued about. The you know, Bitcoin ETFs. You know, we are very close now to the, to the end. Some of those probabilities are literally you know, a day or even like hours before where somehow the spread has not closed. But actually the outcome is pretty much determined. Right. I mean it's very difficult. For now I would argue that the Bitcoin ETF suddenly see, you know, $11 billion of inflows if they have only really seen 22 billion year to date. And I think that's one of these sort of like endgame sweeps where the mathematically it's impossible and therefore we want to take the bet because you know, we can make 4% and 4% again annualized. Looks like a pretty decent return, right?

Laura Shin (44:30)

Yeah. I mean the way that I was reading a lot of these is like if you just keep doing it enough, you know, it's. It's almost like a day trader type mentality. Like you know, the, the more you do it just the. Your earnings accrue and so. Yeah, so then you also talked about time decay capture. So you are saying that those two buckets are the same time data decay capture.

Marcus Thielen (44:56)

There are, they are a little bit similar I think. You know, usually the, the, the time decay is more kind of like you know, if volatility is still, you know, priced. Priced too high. You know, that's what we sometimes seeing, you know, another trade is, you know, I mean, do you think for example that bitcoin will outperform gold this year? And you know, here of course, you know, bitcoin is almost like, you know, around flat for the year. Gold is up 60%. We have three weeks waiting. I mean, you're smiling. But again there's another 4% to be picked up here, you know, if you bet that bitcoin will not outperform gold this year. And I think that's kind of like really, you know, the time capture decay here as a strategy that we're looking at. And you know, and again volatility of those trades is priced is too high because we look at it from an option price of perspective.

Laura Shin (45:53)

Okay, so there's another strategy called maker spread harvesting. Explain what that is and how you use that one.

Marcus Thielen (46:00)

So maker spread harvesting is of course, you know, more for professional traders is really more when the market is really volatile and you know, somebody just places you know, a market order, you know, buy at market versus not A limit order and, and the market just moves. And I think we have, you know, seen this how, for example, retail traders just, you know, buy here versus the spread has moved because it's, you know, volatile and that can be like arbitrage. I think it's more really for professional, you know, with the right trading engines. But that's something strategy. Of course, you know, we know from, from crypto exchanges, we know from, you know, for market makers on tradfi institutions. But that is possible when volatility is high and liquidity is thin relative to, you know, the volumes that are going, going through.

Laura Shin (46:48)

In a moment, we're going to dive more into Marcus's tips for how to trade prediction markets. But first a quick word from the sponsors to make the show possible.

Walrus Representative (46:56)

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Laura Shin (48:13)

Sort of seems dependent on the news moving in some way that makes people a little bit more emotional or something. So is it something where like you would kind of need to predict in advance that that might happen and then have some limit orders ready just in case or like, how do you prepare for that?

Marcus Thielen (48:33)

So market makers in general have like, you know, limit orders in the market. And of course, you know, trading systems can, can move market can, can move those orders out of the market when, when prices move. Right. So we see this of course a lot with, you know, for example on, on the crypto side with, you know, with, with liquidation stops above a certain level, but then the price moves closer to this level and then suddenly these orders disappear. And, and professional traders, you know, can do this as well. And then of course it's a matter really, you know, how the trading engine is really set up. But I think the interesting aspect is really you're trading, you know, some of these, you know, you know, resting orders that maybe some people have in the market versus the, you know, the, you know, the buy at market order. So it's really limit versus you know, get executed now really. And I think that's a little bit where you know, some people maybe they put also, you know, a limit buy order at a much lower price and then are not, you know, not on their computer or not on their phone and then suddenly the market moves and they're getting hit, for example. Right. And I think these are all kind of like these strategies we know from professional traders, but I think it's not one of the core strategies. There are a few other core strategies where you know, that everybody actually can execute versus this one is certainly more for the sophisticated traders.

Laura Shin (49:55)

Okay, so there's another one called probability compression play. Explain what that one is.

Marcus Thielen (50:01)

So of course, you know, I think the best example around that was of course after you know, the, the October FOMC meeting, you know, the probability that that basically the December rate cut would occure, you know, know, fell dramatically, you know, because you know, I guess Powell wanted to keep the odds more or less balanced. And then we moved from near certainty, I think we moved from something like 80 to 90% that that December would be a cut to just down to 30% until you know, New York fed Williams came out and you know, said that a cut would still be, you know, the base case scenario. And then we moved from you know, 30% to again to 80%. So the probabilities have like, you know, massively changed, you know, over time really. And I think that's also some, some strategy where we can see that, you know, it requires of course a little bit, I would say, you know, take taking a view, it's not a riskless trade. But if the probability is just like 30% and we believe that, that the Fed wants to go at least with a 50, 50 market pricing into the decision, I think that makes sense to sort of like, you know, buy this probability, you know, or another aspect might be that, you know, I think everybody sort of like knows that Trump likes to keep his you know, decisions until really the last moment. So betting on, on a Fed chair maybe now is too early. And of course Kevin hasn't had like, you know, 80% or higher really priced in. And that was sort of like a way also sort of like faded. Now it drops to like 70%. But it's sometimes playing around those levels where the time decay is still very long. But the bet which is Again, the probability is not really reflecting this pricing yet. And I think we have seen this maybe around the Fed chair, we have seen this around us FOMC meeting and that's how we look at it.

Laura Shin (52:01)

Okay, so you briefly touched on this earlier, but explain a little bit more about why it is that you avoid what you call long shots and explain what those are.

Marcus Thielen (52:12)

So apparently, you know, when, when a low probability bet, which is basically a contract that is below 10 cents, which is only like a 10% probability, you know, of occurring. So apparently 60% of all the money that is lost is really lost with these, you know, with these long shot bets basically where you take really, you know, if I win this, I can make, you know, 20 times my money. Like if it's a 5% probability, it would pay out of course, you know, 100, right. So you're investing, you know, 5 cents but you can make a dollar and you know, it sounds great. It's sort of like the lottery ticket, you know, mentality how some people approach it. And I think there has been, you know, various studies that if you analyze lottery playing by zip codes in the US which of course have to do with, you know, with income levels, you can analyze, you know, who's playing, when people are playing, you know, what are the, you know, approaches. And I think it's a little bit similar with these low probability betting contracts. They have a very low chance, I think. You know, I think sometimes it's, you know, you cannot help yourself but you want to take a bet because the outside a return seems to be, you know, quite, quite large. You know, for example, betting now on, on a Fed chair that is not one of the, you know, the top candidate basically can actually lead to an outsized return. But it can also mean that actually the probability just reprices, so you might not need to hold it until the end. But you know, a lot can happen between now and something is announced and I think that's something, you know, to look at. And again, I think 60% of all the money that is really lost by the people who lose are with these low probability, you know, trades basically, which is very similar again like with lottery tickets, right? Lottery, you know, one person wins, but you know, so many, you know, thousands and millions are losing even if it's small amount of money because they look at it as, you know, it's fun, it's gambling. But that's, I think not how the professional traders seem to trade. They really seem to focus more on the higher probability trades that really going from, you Know, high probability to a guaranteed probability. And that's where I think the money is. That's how people can pick up the money.

Laura Shin (54:24)

Yeah, it's like that strategy is more like a lot of small wins, but they're more. Guaranteed is not the right word, but you know, more likely basically. More probable. Okay, well, so this actually gets to the next strategies which I actually found kind of interesting because the way I look at it is, yeah, it's, it's basically almost like copy trading. So one of them you called liquidity imbalance trading or follow whale flow. So explain what that is and even, and even how somebody would do that.

Marcus Thielen (55:01)

So of course, you know, the, the, the, the, the venues, of course they're trying to say, you know, we providing the wisdom of the crowds really, you know, a way to really crowdsource the information. But it's not the wisdom of the crowd, it's the wisdom within the crowd. Because within the crowd there will be some large players, they have probably, you know, outsized, you know, information. They can trade larger size and if they're really confident of an outcome, they can place, you know, a big order basically. And yes, it's a little bit like copy trading, but you need to find the people that are really good and I think they are the way to, you know, to find this out. You know, we have seen this of course in crypto as well, where some of the smarter wallets being, you know, followed, you know, by various, you know, services. And I think this can be, you know, done, done here as well. Right. I mean, who has a good track record, who is winning, who might have an edge in a certain category, be it for example, you know, maybe is a very good end, you know, with sports betting or can move the money around, you know, in one category. And I think following those people, you know, makes, makes sense. And it can be a strategy because if they place the bet, yes, it skews a little bit the odds, but it can still generate some interesting returns because you want to follow the smart money. Right. It's just not copying somebody which is like a, you know, like a, a one day winner. But it's more kind of like, okay, who seems to be consistently betting larger sizes and seems to be winning in one specific category. So see, seems to have an edge there.

Laura Shin (56:38)

And so I don't know how it differs on the different platforms, but is it easy to figure out who those accounts are? Like I would imagine maybe on Polymarket it's easier because it's more crypto or.

Marcus Thielen (56:48)

Or no, exactly, exactly.

Laura Shin (56:51)

And so on Kalshi, is it possible or not possible?

Marcus Thielen (56:55)

I don't think it's possible but I think on Pulley market it's, it's possible. So on pulling market it can be done.

Laura Shin (57:01)

Okay, yeah, that makes sense. So then the next one is price sensitivity screening. Explain what that is and also how you're exploiting that one.

Marcus Thielen (57:14)

So one aspect is of course again it's really the one touch barrier options that we need to really look at. Let's say any bitcoin trade. So for example, will Bitcoin hit 100,000, you know, by December this year? Or you know, another trade is will Ethereum hit $5,000 by end, by end of the year? And of course, you know, both. But if you just focus on, on Bitcoin to make it simple, of course we have the one touch barrier option and they're priced in a very different volatility, implied volatility then than normal options we see on DEIT or on ibit. So we can compare, you know, the option surfaces. We can, can compare the probability. What is the probability that for example Deribit options price that bitcoin will hit 100,000, you know, by, you know, their contract expires by, by December 2026, I think. And then we can compare it of course to ibit, you know, when they expire. And you know, we have around, you know, of course a much higher volatility because it's just like one touch. Right? So you know, If Bitcoin hits 100,000, this, you know, from, you know, from now until end of the end of the month, it can happen at any time versus you know, the other options on Deribit, for example, or on iBIT. It really depends on, you know, at the end of really the, you know, the option expiry. So but we can understand and we can see if there is a volatility spread to be harvested. And of course the argument is that on Poly Market or on these prediction markets, it's more likely that retail investors are trading on these exchanges. It's a little bit more difficult to exchange, you know, some of your Greeks, your, you know, your vega, your theta exposure and all these things. But nevertheless we can calculate a probability and we come actually to a much higher price probability. For example, when we sent out the idea there was a 60% probability priced in, on, on Poly Market that bitcoin would hit 100,000. And yes, maybe this is because retail investors are more enthusiastic. You know, people love the 100,000. People think, you know, the Fed is Going to cut of course Bitcoin is going to, going to rally in December versus on other exchanges. The probability was just let's say around you know, 10, 15% and then adjusting of course because it's a you know, one touch barrier. So the volatility is, is naturally twice or three times as much. So we're getting to a volatility in the, you know, I would say institutional market, let's say on Derivit, you know, of around like 30% volume versus 60% Vol. On, on poly Market. And of course it means you selling, you know, the one on Poly Market and maybe you're buying the one on Deribit. So this is kind of the probability compression here really where you're arbitraging one market against another. And I think that's kind of like a strategy we put forward and you know, so far it seems to work out.

Laura Shin (60:13)

Huh. Okay. All right, so the last couple are like maybe a little bit similar. One you're calling conditional hedging. Explain you know, what that is and how you capitalize on those situations.

Marcus Thielen (60:31)

Yeah, it's just, you know, just like a macro event risk. You know, I think that's kind of the initial, I think the initial argument how Kalji got the CFTC ruling in 2024 really, you know, arguing that well some people want to hedge some, some real world outcomes. So it's about event contracts, you know, enabling hedging really and you know, of course, of course price discovery as well. But it was really about these, you know, real life economic outcomes. You know, if for example, I don't know, oil price would be below something below $60, it's you know, maybe more difficult to do in the futures market where it has traditionally been done because it's not a definitive outcome and it needs to be rolled. There's always be some delivery risk versus you know, on prediction market it would be a yes or no. And I think that's sort of like the, you know, how insurance contracts are, are sometimes structured and I think here is a little bit similar.

Laura Shin (61:33)

Okay, so the last one again is I think you know, somewhat similar to what you just described. You call it event calendar positioning. Explain what that one is.

Marcus Thielen (61:43)

Yeah, Fed meeting of course, anything around those. But it's also you know, expecting an event like you know, political events and I think that's like the little, the difference, you know, because of conditional, it's really almost like where you have an economic interest in, in, in the event versus the event calendar is really you, you're betting on an election or you're betting on, you know, a Fed outcome. I think you, you can go and you know, differentiate themselves a little bit more on the technicalities, you know, because there can be some arbitrage involved between different instruments. But I think want to make it too complicated. I think most of the money again is on the sports betting, but I think on, on this strategies that you just outlined, I think most of the money seems to be really in the end game sweep, in the time decay capture because that's where the bigger money is, is being played and not necessarily on, you know, on these, you know, moonshots or, you know, you know, other really lottery tickets stuff. Style, Style traits.

Laura Shin (62:48)

Okay, well, I appreciate that you walked us through all that. I mean I, I honestly found that blog post really fascinating because it just shows kind of how analytical you can get. You know, I think a lot of people, when they just look at this, they're like, oh, you know, you're trying to figure out what's going to happen in the future, whatever. But no, it's like you don't, you don't necessarily have to have any information about the event. You just have to have the ability to reason about the likelihood of various outcomes and then look at like whether the pricing makes sense for that event. And then, and you know, it's not like you need information about whatever this topic is. So yeah, I just found it really interesting. Well, is there anything that I didn't ask you about prediction markets that you feel would be useful for the listener to know?

Marcus Thielen (63:38)

I think we covered, you know, already, I think a lot. I think we covered, you know, the strategy, I think where people, you know, should focus on. I think the key is really, you know, are you approaching those prediction markets more from an entertainment perspective? But then, you know, just like with any entertainment venue, you, you're paying an entry price and you know, you shouldn't complain if you know, you have like less money in your pocket at the end of the day really. But I think the aspect is really there's more and more professional traders looking at these markets and really pricing it from a probabilistic viewpoint. And I think that's really kind of really the takeaway and that's what we wanted to explain to our subscribers. That is a probability event. There's a way to make the money on the, not on a hundred percent guaranteed side, but on a higher probability side. And I think that's kind of like interesting because everybody of course quotes all these predictions. But again, it's really the aspect is in the wisdom within the crowd and not necessarily the wisdom, you know, of the crowd and it's really finding your right niche. But it's definitely going to be a growing theme going into 2026 and I think the airdrop could be quite interesting where you know, the more the activity is going to, you know, you know, starts to increase I think the more you know they're becoming part of what we're doing. That's why we're also seeing of course all the you know from from the Robin Hoods being, you know, getting involved and everybody tries to get some of the pie here. So something is definitely happening and we wanted to be ahead of this and that's why we look at some trades and you know, explain some, you know, how to really make money on these exchanges or not or prediction markets.

Laura Shin (65:19)

All right. Well, Marcus, it's been such a pleasure chatting with you. Thanks so much for coming on Unchained.

Marcus Thielen (65:25)

Thanks for having.