What’s Going On with the Prediction Markets?

A recent report by The Wall Street Journal implies that former President Donald Trump’s rising odds on a popular betting platform may have been artificially inflated by a small group of bettors.

Trump’s chances of defeating Vice President Kamala Harris in the upcoming election have surged on Polymarket, an online betting site partially funded by Trump supporter Peter Thiel. 

As of Sunday, Polymarket pegged Trump’s odds at 59.7% and Harris’s at 40%, despite some polls showing Harris either slightly ahead or locked in a close race. The last time the two candidates were tied on Polymarket was on October 4th.

Source: Polymarket

However, The Wall Street Journal points out that this surge could be deceptive, potentially driven by just four anonymous accounts. These accounts have allegedly placed around $30 million worth of bets on Trump in recent weeks. Polymarket’s odds rely on collective betting patterns rather than external data like polls, which makes them susceptible to manipulation. The accounts in question—Fredi9999, Theo4, PrincessCaro, and Michie—were all created between June and this month, and reportedly exhibit similar betting behavior and were funded through the same cryptocurrency exchange.

Miguel Morel, CEO of Arkham Intelligence, told The Wall Street Journal that there’s a “strong reason to believe” all four accounts are controlled by the same entity. Rajiv Sethi, an economist who previously identified attempts to manipulate betting markets during Mitt Romney’s 2012 presidential run, agreed that this situation looked suspicious. “If I were trying to manipulate a market, this is exactly how I would do it,” Sethi said.

Adam Cochran, a crypto investor, and Never Trumper speculated that this might be part of a strategy to lay the groundwork for future claims of a stolen election if Trump were to lose. Political strategist Tom Bonier, a senior adviser at TargetSmart, believes these bets could be part of a broader effort to shape public perception of the race, emphasizing Trump’s image as a “strong” candidate. Bonier told Fortune, “If the public perceives Trump as losing, his image of strength—and consequently his support—could crumble.”

Polymarket has launched an investigation into possible manipulation, and it’s also possible that the bets were placed by individuals genuinely convinced of Trump’s victory or as a financial hedge in case of a Harris defeat. Alternatively, they may be trying to artificially inflate Trump’s chances to boost morale and keep the campaign’s donations flowing.

Others argue that prediction markets like Polymarket can be prone to insider trading, and they see this as a feature not a bug as this enhances market accuracy by incorporating privileged information. While this practice is illegal in traditional markets for fairness reasons, prediction markets prioritize accuracy over fairness.

Analyst and commentator Nic Carter wrote on X “It’s pretty obvious it’s not just a lone trader that’s upwardly manipulating Polymarket since all bookies and prediction markets give Trump roughly the same odds. The real divide is between the markets and the press/pundit driven proprietary models, which are more bullish Harris.”

Source: X

It’s also possible that Trump is ahead, and will win, and the betting markets are ahead on this. Nate Silver has the race tightening, writing today that, “Starting to see some Trump leads in high-quality national polls, which is certainly not a great sign for Harris. Very close race, though.”

Source: X

Some other interesting Polymarket markets include:

Trump ahead in Pennsylvania, the crucial swing state 

Will Trump go on Joe Rogan Before the Election?

Will Bitcoin hit a new all time high in 2024?