How To Make 10x Trading Bitcoin Transaction Fees
In this issue we'll cover Alkimiya and how users can trade derivatives around Bitcoin transaction fees
Gm Degens
It’s Thursday Evening, you’re sat on your desk, notifications on, waiting for that next hyped Ordinals collection to drop.
‘This one is the next Node Monkeys, and it’s a free mint!’, they said. You check the Twitter page for the impressions, likes and RTs - they’re completely off the scale. You have a good feeling about this one. You load up your Bitcoin wallet, make sure you’ve got enough BTC to mint and set a timer on your phone to make sure you’re ready when the mint goes live.
1 minute remaining, you start refreshing the screen, again and again. F5 / Command+R is the only thing you can think about.
The timer hits 0:00, the page loads slowly, you have it open on your second device too just incase it loads a little faster. You click mint, the transaction interface opens…
BTC transaction fees SKYROCKET.
You don’t have enough to cover the mint. You smash your fist on the desk, ‘eughhh’, another opportunity to make money wasted, you knew it would be a popular mint. You go to twitter to immediately see the reaction and stumble upon another fellow degen who missed the mint. Strangely, he isn’t upset like you are. You ask him why?
He smiles at you, ‘I used Alkimiya, I knew transaction fees would go up. Instead of buying the ordinal, I longed Bitcoin fees’.
Your mind blown, you google search ‘Alkimiya’, which brings you directly here to this issue that you’re reading right now!
Alkimiya is the derivative layer that enables the speculation of Gas fees on network layers.
This post has been made in collaboration with Alkimiya.
Public chains have finite amounts of blockspace and Bitcoin is no exception to this. When transaction demand is high, blocks get filled quickly and in order to meet demand, network fees often increase. We’ve seen this time and time again when new mints occur or during heightened network activity. In fact, you can see how even in recent days how the tx fees change day to day, at some points even 30-40% higher from one day to another. At extremes we’re talking 10-20x higher.
The idea is this can benefit a range of parties including:
Service users including L1s/L2s, market makers, exchanges, wallets, and other infra providers currently building on Bitcoin that who want to lock in a certain amount of network fee they’re happy with by hedging. (Long BTC fees so when they have to pay high network costs, they can cash out by closing the position and negate the effect of high fees).
Miners who can sell BTC fees and lock in profits
Speculators on Bitcoin including those who like to trade on the Bitcoin network when it comes to Runes, Ordinals or inscriptions and now soon to hopefully be the beginning of DeFi on Bitcoin.
Traders looking for a speculative new instrument to use
So how does it work?
Built on ETH L1, users can take wBTC and trade with new instruments that represent Bitcoin network fees.
Users can open up ‘buy’ or ‘sell’ positions in which users can bet on the direction of future network fees. These occur in week long event epochs as can be seen in the blue box within the graph below. Each of these pools has a floor and a cap to protect against black swan or long tail events.
Users are trading an index which tracks the median Sat/vB per block, by taking the Sat/vB of all transactions from inside a block and finding the median value. Users can open order or buy positions from others to either long or short the market. These are positions buyers and sellers create against each other and are closed at the end of the pool date after which they are settled (in wBTC).
So if you think average BTC fees will rise, open a buy position, if you think the inverse, open the sell position!
Right now they currently offer this product on Bitcoin transaction fees but the idea is to expand to other markets including Ethereum which could be a massive opportunity especially with the sheer number of L2s that are coming on to stage to hedge out their gas costs.
Alkimiya currently have a trading competition for you all to try out, personally I have been trading by recently being a little on the sell side when it comes to Bitcoin fees which are at historic 10 year lows.
With the upcoming hype around Babylon and the deposits that are to be expected when this launches next week, I’m thinking that fees will go up - perhaps I need to adjust my positions for then! Babylons Bitcoin staking mainnet is due to go live with caps on the deposit at around 1000 BTC. Given the hype and demand around this, to me this feels a little what Eigen Layer felt like when the initial launch occurred. Gas spiked to $50 for ETH and I’m expecting a similar story here with Bitcoin.
Alkimiya introduces a really novel product, especially for the Bitcoin ecosystem. This is only the beginning too with marketplaces for ETH gas coming in due time. Curious to hear your thoughts, is this something you would use?
