Prediction Markets vs. Options: In the face of a market crash, Kalshi can't save your position.

Author: Bonna | U Buttermilk , Early Investor in Nothing Research

The bear market is certainly not over.

However, if you have already established a position of $1 million BTC, the cost would be $70,000 (14 BTC).

They're also afraid of buying at a high price, worried that it will drop to $50,000 later.

What would you do in this situation?

Are you really that confident about reducing your position and buying back when the price drops? What if you miss out? Should you hedge by opening a short position in a contract? However, there are funding fees, and the longer the time frame, the greater the uncertainty of costs. Moreover, if you want higher capital efficiency, you have to worry about being liquidated, which doesn't seem like such a worry-free solution.

Or perhaps you could check out the market forecasting?

Both @Polymarket and @Kalshi have predictions about where BTC will fall in 2026. Or should you just buy a BTC put option on @DeribitOfficial ?

My personal conclusion is that it's an option.

You'll only know how good it is after you've tried it. No need to sell cryptocurrency, no need to pay funding, no need to time the market. Think of it as buying insurance.

To this end, I manually compared the hedging efficiency of "Below $50k" on Kalshi and BTC $50k put options on Deribit, which should illustrate the reason more intuitively.

1. If both spend $52,000 on hedging, how much difference is there in payout?

For assets like cryptocurrencies with public markets, binary contracts are actually quite expensive. The YES contract for "Below $50k" is priced at 60¢, meaning you only earn 40¢ if you win, and lose everything if you lose, resulting in a 1.67x return.

On Deribit, a $50k strike price BTC put option expiring in December 2026 has a mark price of approximately $3,729 per contract, a delta of -0.16, and is deeply out-of-the-money, making it much cheaper. Covering an exposure of 14 BTC, the total cost would be approximately $52,000.

Let's assume we spend the same $52,000 on market prediction and put options:

Kalshi "Below $50k": $52,000 ÷ $0.60 = 86,667 contracts, winning $1 per contract. Deribit Dec 2026 BTC $50k Put: $52,000 ÷ $3,729 = approximately 14 contracts.

- BTC $45k: Put options pay out $70,000, Kalshi pays out $86,667

- BTC $40k: Put options pay out $140,000, Kalshi still $34,667

- BTC $30k: Put options pay out $280,000, Kalshi still $34,667

- BTC $20k: Put options pay out $420,000, Kalshi still $34,667

When BTC first dropped below $50k, Kalshi's payouts were actually slightly higher. But if it fell further, put options quickly became overwhelming. And if you wanted to use Kalshi to fully cover a $300,000 loss if BTC fell below $50k, you'd need to buy 750,000 contracts, costing $450,000. The cost difference is huge.

2. Options trading offers flexibility comparable to market prediction.

Of course, in practice, no one is really foolish enough to wait until December 25th for settlement. Both tools allow for exiting midway, but the return structures upon exit are quite different.

The prediction market does have an advantage. The "How low will Bitcoin get this year" prediction is more like the logic of American options, which is more friendly to buyers. At any time this year, if BTC hits below $50k, it's a win. Even if it rebounds to $80k later, the YES side wins.

Most BTC options are European-style, meaning they only consider the price on the expiration date. If the price drops below the expiration date but rebounds, you won't receive any money upon exercising the option. However, this is only a limitation on the exercise itself; you can sell the option on the secondary market at any time. And the potential profit from selling midway through the term isn't actually that bad.

During a BTC crash, your put options will surge simultaneously due to two factors:

1) Delta changes

Delta measures how much your put option gains for every $1 drop in BTC. When you buy it, it's deeply out-of-the-money: BTC needs to drop from $71k to $50k to have intrinsic value, which the market considers unlikely, so the Delta is only -0.16, and the put option isn't very sensitive to BTC volatility. But when BTC actually starts to fall towards $50k, the market realizes that this put option is increasingly likely to become in-the-money, and the Delta will quickly amplify from -0.16 to -0.5 or even higher.

2) Implied volatility (IV) surges

The price of an option depends not only on how far BTC is from the strike price, but also on the market's expectations of future volatility, also known as implied volatility (IV). You can think of it as a "fear index": the more people believe the market is about to crash, the more expensive the options become. And often, market surges or crashes reinforce expectations that IV will continue to rise.

When BTC is trading sideways around $70k, the market is relatively calm, the implied volatility (IV) is relatively low at 51%, and options are cheap. However, once BTC starts to plummet, panic spreads, and everyone wants to buy put options to protect themselves, causing demand to surge and the IV to soar to 80-100%. Volatility alone can double the price of your options.

At this point, you can choose to sell options to realize a portion of the profits, thereby offsetting the losses from your BTC holdings, and reinvest these profits back into BTC to acquire more BTC. You don't need to sell a single BTC throughout the process, nor do you need to time the market precisely, which is something that reducing your position or opening a short position cannot do.

Of course, to fully hedge, you need to maintain a Delta-Neutral strategy and constantly adjust your option positions, but for most people, I don't think that's necessary. It's the same as how difficult it is to buy at the bottom; as long as the price drops, you can have some profit to offset the losses, and that's enough psychologically.

3. The irreplaceable aspects of market prediction

Of course, market prediction is not entirely useless in the hedging field.

For assets with publicly available market prices, options are indeed far more efficient at hedging than market prediction. The core reason is simple: if your losses are linear, your hedging instrument should also be linear. Using binary payouts to hedge linear losses is structurally a mismatch.

For events that don't have corresponding open market prices or options markets, you can only rely on prediction markets. For example, many political and macroeconomic events clearly have a huge impact on your portfolio, but you can't buy an option to hedge them.

In this scenario, market prediction becomes the only tool available.

You now have at least a channel to express your views and manage risks.

Therefore, prediction markets and options are more like complementary.