State of Prediction Markets: What You Need to Know
Whales Betting Trump, Election Odds & More
If you’ve been keeping up with crypto or politics, you’re probably aware that some recent large buys have dramatically swung the Polymarket election odds in Trump’s favor. Current odds read 52.8% - Trump, 46.7% - Harris. Many were a little puzzled by this, as there hasn’t really been much in the way of news that might swing odds this much. Regardless, this has brought even more eyes to the Polymarket platform than there were previously. Elon Musk even gave props to the platform, providing a simple but strong assertion that prediction markets are “more accurate than polls, as actual money is on the line”.
This singular tweet earned tens of millions of views. Polymarket is seeing sort of a perfect storm right now in terms of attention. The team has made much use of the election odds as a data point, a product in and of itself, distinct from the actual betting platform. The IOS Polymarket app doesn’t even allow users to participate in bets or see other markets - it only serves as an election odds gauge. This puts Polymarket in competition with platforms like ABC’s 538, which solely focuses on election-related polling. In today’s edition, we’ll discuss some pros and cons of prediction markets and how Polymarket’s role as a platform has changed over time.
Stay informed, stay alert ⬇
Crypto twitter has recently been awash with speculation around Polymarket’s Satoshi market, speculating on who will be ‘revealed’ as the $BTC creator in an upcoming HBO documentary. Still, this market pales in comparison to the election market, seeing ~$36M in volume traded to the Presidential election market’s $1.5B. The recent swing toward Trump has left some scratching their heads. We’ve seen price manipulation events on Polymarket before - hint, it failed.
This latest swing even drew the attention of Nate Silver, a premier polling expert whose election models are often referenced. Nate doesn’t attribute this swing to ‘truth’, as typically at this point in an election there is little that can change voters mind. The more prominent variable is error, the measure of just how wrong polls are. Among other factors, this is often due to polls targeting certain groups that aren’t representative of a state’s demographics, or at least representative of the voter demographics.
Silver is actually an advisor at Polymarket, and isn’t dismissive of prediction markets by any means. Nonetheless, he, and many others, concluded that this recent swing is indeed just the result of large purchases of Trump ‘Yes’ shares, as indicated by the fact that neither traditional polls nor the Polymarket popular vote market moved in accordance with this shift.
On this note, prediction markets may be used by some as a source of truth without taking into account basis. This is not a problem unique to prediction markets; similar situations can be observed on CEXs. A given individual’s PnL on a CEX doesn’t indicate whether or not they are hedging on another exchange in some capacity, so you’re only seeing one side of the trade. This can play out in traditional markets as well in all sorts of ways.
The same could definitely be happening in prediction markets, though not as clearly as this sector is still in its infancy. Drift’s prediction market has less liquidity, much less (~$26M in election bets to date), and is more sensitive to odds changes as a result. But someone could theoretically be buying ‘Yes’ shares for a candidate on Polymarket, and potentially moving the odds as a result, while placing some amount on the opposite candidate’s ‘Yes’ outcome on Drift. Considering how aligned crypto prices have been to Trump’s odds (though this definitely isn’t the only factor affecting crypto markets), people also could have been hedging bets simply using crypto.
Until a recent pro-Trump bet swung the market, the Polymarket prediction odds have been more or less tied, with subtle variations that often quickly correct. Regardless of the attention and fanfare, the platform has achieved, citing it as a ‘source for truth’ may be a bit of a stretch, but it can be good for gauging sentiment changes before, during, and after key events. From assassination attempts to debates and more, Polymarket odds, which are 24-hours don’t require any admin work, unlike polling, provide instant data on what markets think. Much like how $BTC has become an asset that can indicate sentiment when it comes to geopolitical and macro events, Polymarket also serves a role in charting how mindshare changes unexpectedly.
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