"Touches $100,000" versus "closes above $100,000": why contract wording matters

Price-threshold contracts look like the simplest markets there are: will Bitcoin be above a number. The wording decides everything, and three different wordings on the same number produce three different contracts.

Touch, close, and window

Touches. Settles YES if the price trades at or above the level at any moment before the deadline, on the named source. A one-minute spike counts. These contracts are the most likely to pay and they price accordingly.

Closes above. Settles YES only if the price on the named source is above the level at a specific moment, such as a daily close or a deadline time. A spike that reverses does not count. On the same level and the same deadline, a close contract is worth less than a touch contract, and if it is not, the market is mispriced.

Ends the window above. Some contracts ask where the price is at the end of a defined window, such as a specific week or month. Wording about time zones and the exact reference minute is where these go wrong.

The settling source

A contract names a price source: a specific exchange, an index, or a provider. Prices differ across venues by small amounts most of the time and by large amounts during volatility. A contract that settles on one source can settle YES while another source's price never reached the level. Read which one it is.

Deadlines and the curve

A ladder of monthly deadlines on the same level, such as "Bitcoin hits $100K by October," "by November," "by December," reads like a curve: each later deadline must be priced at or above the earlier one, because reaching the level by October implies reaching it by November. Where a later month trades below an earlier month, one of the quotes is stale. Where the curve is steep, the market expects most of the probability to arrive in that window.

A worked example

Say Bitcoin is at $92,000. A "touches $100,000 by December 31" contract might trade at 84. A "closes above $100,000 on December 31" contract might trade at 60. (Live prices for the real contracts are on the Bitcoin $100K odds page and the daily price ladder; the arithmetic here is the point, not the level.) The 24-point gap is not a mispricing; it is the difference between reaching a level at any moment in four months and being above it at one specific minute. A reader who treats the two as the same question will conclude one of them is wrong, and be wrong.

Related instruments are not equivalent

An options market, a futures curve, and a prediction-market ladder all express views on the same price. They settle on different sources, at different times, with different definitions. Comparing them is useful; averaging them is not. We label such comparisons "related, not equivalent."

What to take away

• Touch pays on any moment; close pays on one moment. The same level, different contracts.
• The named source settles, and sources disagree during volatility.
• A deadline ladder must rise with the deadline; read it as a curve.
• Never average two contracts that ask different questions.