No, Polymarket Whales Aren’t Evidence of Prediction Market Manipulation

There’s been quite a bit of concern expressed over this matter, coming from both backers of Vice President and Democratic nominee Kamala Harris on social media platforms like X (formerly Twitter), who may have a vested interest in labeling the markets as manipulated, and also from mainstream news outlets. As The Wall Street Journal suggested, the surge could potentially be an artificially created illusion, possibly orchestrated by a group of four Polymarket accounts that have invested around $30 million worth of cryptocurrency into bets favoring Trump’s victory.

Indeed, there may be a lone bettor who has gone very long on Trump. But that’s not necessarily evidence of something sinister.

As a communications partner at Trust Machines, a company dedicated to developing Bitcoin apps, and the host of my own podcast, The Aubservation, I’m deeply immersed in the crypto world.

As an analyst, I’d like to highlight that it’s not only Polymarket where the momentum for Trump seems to be growing. The market value of “Trump yes” shares on Polymarket currently stands at approximately 59.9 cents, suggesting a 59.9% likelihood of his victory. Each share yields $1 if the prediction materializes and nothing otherwise.

Bookmakers online are indicating a strong likelihood for Trump’s victory: 59% at BetOnline, 55% at Betfair, and 60% at Bovada, among others. Furthermore, it’s possible that Trump’s chances of winning are actually growing, as he is trending up in the poll averages. This rise in Trump’s prediction market odds seems to coincide with a challenging interview for Harris on Fox News and recent polls showing Trump gaining support.

In addition, just because one unidentified investor has placed significant trades doesn’t automatically mean they are manipulating the market, as some Harris supporters suggest. To clarify, Bloomberg columnist Matt Levine states that “this behavior does not indicate market manipulation.” Instead, it seems that Fredi9999 is meticulously purchasing contracts, not recklessly pushing up prices, but rather in a way that appears to be aiming to get him many Trump contracts for his investment. Essentially, the most straightforward interpretation is that this trader believes Trump’s stocks are undervalued and is prepared to take a substantial risk on that assumption.

As a crypto investor, I understand that just because a large buyer exists, it doesn’t necessarily mean manipulation is taking place. Market dynamics are such that prices reflect available information and reward those who take risks to express their views. Who the traders are or where the trades are distributed is immaterial; in theory, everyone has a reason to glean insights from markets by trading when their perception of an asset’s fair value differs from its market value. Markets don’t have to be democratic to be trustworthy; they merely need to ensure that well-informed participants financially express their views. The concentrated ownership of an asset by individual traders doesn’t invalidate the price in any way. After all, nobody questions the price of Apple stock because Warren Buffett’s Berkshire Hathaway holds a significant stake in it.

Here’s a more conversational rephrasing:

However, let’s imagine that the trader indeed invested significantly with the intent of manipulating market trends to create the illusion of a Trump victory as being more probable.

To start with, it’s uncertain if this move would advantage Trump. It could potentially lead his voters to feel overconfident, decreasing their vote count on Election Day (or perhaps stimulate Harris supporters to actively participate in voting).

In my analysis, I would like to emphasize a point Polymarket highlighted in their blog post on Monday. They explained that if any user suspects trades are being made for non-financial reasons, they can simply adjust the odds to counteract this potential influence by disregarding the bets placed by the large players, or whales, in the market. This allows for a more balanced and fair market environment.

One way to rephrase the given text could be: What’s the point of focusing on prediction markets? In terms of elections, these markets provide information more swiftly compared to analysts, surveys, or media outlets. This speed will persist during the November election, not only for the presidential bet, but also for various state-level contracts. The motivation for traders is financial, so they tend to disclose nonpublic information. Consequently, viewers can watch victory odds update live across all 50 states instead of waiting for Fox or CNN to announce them. By leveraging trader enthusiasm, markets are capable of outperforming designated experts.

For some time now, Polymarket has been surpassing established providers of election data. Well before President Joe Biden’s disappointing debate performance, Polymarket traders had already started indicating significant chances that he might withdraw from the race, a notion that was generally discarded by mainstream commentators at the time.

Beyond contracts such as the election winner contract, offer a potentially more valuable data insight compared to simple poll averages. For instance, national polls showing Harris leading Trump by 49% to 47% may not provide significant details about her true chances of success; it’s essential to focus on the electoral vote and especially the results in crucial swing states. The highly flexible Polymarket election winner contract condenses all relevant data into a straightforward estimate, providing an understanding of each candidate’s likelihood of emerging victorious.

It’s also worth remembering that a 60% to 40% lead on a prediction market is not remotely comparable to a 60% to 40% polling lead. Prediction markets should be thought of as high-beta derivatives of the polls. If Trump were polling at 51% to Harris’ 49% in the national polls, his actual odds of victory would be 90% or more. In prediction markets, 40% to 60%, 45% to 55%, or 60% to 40% odds are all coin-flip territory. So Trump’s rally on Polymarket does not reflect a massive revaluation in his odds of victory. Polymarket whale or not, it’s still an extremely close race.

Please be aware that the opinions shared within this article belong solely to the writer. They may not align with the perspectives of CoinDesk Inc., its proprietors, or associated entities.