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“Crypto is legal now. Don’t overthink it.”

— Jonah Van Bourg

Thursday dream scenario mailbag

Q: What did the French whale know?

Much more than we thought!

When the Wall Street Journal first made contact with the Polymarket bettor Fredi9999, they widely dismissed him for having “replacement level” views — Fredi9999’s huge bets appeared to be based on the naive assumption that the “shy Trump voter effect” would fool pollsters for a third straight time.

This seemed like such a mid-curve take that even true believers in prediction markets, like the economist Justin Wolfers, started doubting their efficacy.

But additional reporting by the Journal has flipped that view on its head.

We know now that the Polymarket better has a name — “Théo,” he says — and that his take on US election polling was anything but mid. 

“Théo argued that pollsters should use what are known as neighbor polls that ask respondents which candidates they expect their neighbors to support. The idea is that people might not want to reveal their own preferences, but will indirectly reveal them when asked to guess who their neighbors plan to vote for…He told the Journal that he had commissioned his own surveys to measure the neighbor effect, using a major pollster whom he declined to name. The results, he wrote, “were mind blowing to the favor of Trump!” 

This is incredible proof of concept for both prediction markets and crypto.

It’s proof of concept for prediction markets because it’s always been a little mysterious how they could be smarter than the polls — what else could people possibly be basing their predictions on?

Well, now we know: Prediction markets incentivize people to find better information on which to base their opinions — and then share that information with everyone by betting on it. 

And it’s proof of concept for crypto because crypto makes Polymarket permissionless (all you need is a digital wallet and a VPN) and that created both the opportunity for someone from France to participate and the liquidity to make it worth his while.

So worth his while that he commissioned his own private polls of US voters.

Amazing. 

Q: Why did I pay $0.38 for Kamala last week?

Only you know what was in your heart, but I think you did it because it looked like it was “positive expected value,” as Nate Silver would call it. 

In his final analysis, Silver said the race was “closer than a coin flip” (citing a study finding that flipped coins land on heads 50.5% of the time), in which case $0.38 was a good — and maybe even excellent — price to pay.

It doesn’t look that way in hindsight, of course, but any poker player will tell you that you can’t judge a bet by its outcome. 

That applies equally to election betting because while Trump’s margin of victory was such that he was always going to win (that’s now clear), him doing so was unknowable from the polls that we had to work with.

Consider that to avoid the pitfalls of “outcome bias,” a sports bettor’s skill is measured not by the outcome of the games they’re betting on, but by the odds they received relative to the closing odds (ie, the odds immediately before a game starts).

There are no official closing odds on the election but the $0.38 you paid was in-line with Kamala’s late odds on Polymarket, so the price you got was at least fair (and much better than fair relative to Silver’s odds).

That may feel too high in hindsight, but the probabilities embedded in election markets are a measure of how predictable an election is, not a literal prediction of what the outcome is going to be.

As to why you paid $0.38 and not $0.50?

You mostly have Théo the French whale to thank for that.

Q: Is the US government going to buy bitcoin?

Senator Lummis says it’s going to happen but the market seems skeptical: Would bitcoin still be sub $100,000 if people really thought the US government — the ultimate whale buyer — was going to wade in anytime soon?

Before the election, Standard Chartered forecasted bitcoin to hit $200k by the end of 2025, based mostly on the demand from ETFs and MicroStrategy.

If you add the US government to the list of known buyers, it seems like you’d need a much higher price target. 

How high is impossible to quantify, of course, but here’s a guestimate from Jonah Van Bourg: “If we get a bitcoin strategic reserve? Million dollars a token.” 

If so, today’s price of $76,000 is either 1) an incredible buying opportunity or 2) a hive-mind signal from the market that it’s not going to happen.

As we’ve learned from prediction markets, it’s annoyingly difficult to differentiate between when markets are offering us an opportunity and when they’re just offering us information. 

Part of what makes markets efficient is that the golden nuggets and shiny distractions so often look alike.

Q: Is it too late to buy crypto?

The guys on the 1000x podcast don’t think so.

Jonah believes we’re in “the second inning of one of those parabolic moves” and that you “really need to be buying now.”

His co-host Avi Felman added that “bitcoin is obviously a big winner. But everything is a big winner. This isn’t being priced in enough.”

I would caution that crypto remains a risk asset and all kinds of risks (in both directions) will be rising under a Trump Administration — but that is almost certainly overthinking it.

Q: Should we have a bitcoin strategic reserve?

I think it’s a terrible idea, mostly because it would provide an immense benefit to a tiny cohort of people (bitcoin holders) and a negligible benefit to everyone else (a brief forestalling of a currency crisis).

The government hedging its bets by buying a little bitcoin probably even risks accelerating the crisis they’d be trying to hedge against (which is far too big of an event to be hedged, anyway).

If you’re going to be the world’s reserve fiat currency, you need to own it.

Q: When will we get crypto-friendly legislation?

Not for a long while yet.

Alex Thorn of Galaxy Digital thinks it’s “very unlikely you see something move on crypto within the next two years,” mostly because Republicans will be focused on higher priorities — and former SEC staffer Coy Garrison cautions that “changing the SEC’s approach to [crypto] is going to take the entire four years of the next administration.”

This is excellent news for crypto because the longer new legislation takes, the better.

The Trump Administration is likely to drop all existing cases against crypto firms pending new legislation, leaving us with no rules at all in the interim.

Deregulation via lack of enforcement is even better than the friendliest possible crypto legislation because crypto is simply legal now.

Should be fun!

— Byron Gilliam

Brought to you by:

MANTRA Chain’s mainnet has officially launched, marking a significant step towards their vision of becoming the preferred ledger of record for tokenized RWAs. While features of the Mainnet will continue to develop, users can already access the following notable activities:

• Bridge $OM from ERC-20 to Mainnet to gain access to future RWA drops

• Stake $OM to help secure the network and earn onchain staking rewards

• Earn KARMA by completing new missions on mainnet

While 2024 has been a landmark year for MANTRA, including strategic collaborations with UAE real estate giant MAG and Zand Bank, the launch of the Mainnet will open the door for significant movement in the real-world asset space.

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Building Models for Coins, Fixing Arbitrum, and Intents

Brick from Entropy Advisors and Tumilett from the Spartan Group discuss the importance of fundamentals in crypto, memecoin/DePIN activity on Solana, crosschain intents and wallet value capture. Tune in so you don’t miss out!

Listen to 0xResearch on Spotify, Apple Podcasts or YouTube.