Trump Conviction Barely Dents His Odds of Winning Election: Prediction Markets

As a researcher studying the political landscape, I’ve discovered an intriguing fact: Donald J. Trump is the initial U.S. president, past or present, to be found guilty in a criminal court. However, this unprecedented title seems to have minimal impact on his prospects of regaining the presidency, according to prediction markets.

For those new to the concept, in prediction markets, when a bet is resolved, winners receive one dollar for every contract they’ve purchased, while losers get nothing. The worth of a contract functions as an indicator; for instance, a contract valued at 40 cents can be interpreted as a 40% probability that the forecast will materialize.

At Polymarket, the crypto platform hosting the election contract, the aggregate wagers have approached $150 million. The announcement of Trump’s guilty verdict failed to significantly impact prices, causing only a slight decrease of approximately one cent in the value of the “yes” contract.

Each week, the likelihood of Trump securing victory has decreased by approximately two percentage points, dropping to 54%. However, on May 31, following the jury’s conviction of Trump for felony offenses, this downward trend slowed, with a mere one percentage point reduction in probability.

As a researcher examining the latest political data, I’ve noticed that Trump currently holds a significant lead of around 16 points over President Joe Biden in the betting markets on Polymarket. However, when we look at traditional polling averages, Biden is closing the gap, and the difference between the two candidates is now less than one percentage point based on the aggregate data from 270 to Win.

As a researcher studying the behavior of prediction markets, I’ve observed an intriguing development on PredictIt, a more conventional betting platform where trades are conducted in U.S. dollars instead of stablecoins. Following the guilty verdict in the Trump impeachment trial, the contract for Trump gained a penny in value. Although his lead over Biden currently stands at 51-48 on PredictIt, this figure is now closer to the latest polling data and narrower than the spread observed on Polymarket.

As a crypto investor, I’ve been keeping an eye on the news regarding former President Trump and the ongoing legal proceedings against him. Based on the insights from legal experts, it seems unlikely that he will be sentenced to prison for his crime. The current market sentiment appears to align with this perspective.

In a Polymarket wager regarding Trump’s potential prison sentence, the majority of bettors are rather certain that he has a high likelihood of avoiding imprisonment, with an estimated probability of approximately 76%. There is also a sizable chance, around 18%, that he may serve less than a year if found guilty. Lastly, there’s a minimal possibility, roughly 2%, that Trump could spend between one to two years behind bars.

The predictions made by Polymarket bettors regarding the sentence for Changpeng “CZ” Zhao, the former CEO of Binance, were relatively precise.

I served a four-month prison sentence following my conviction, which was longer than the market anticipation prior to sentencing. Initially, investors were optimistic that I would receive a term of less than a year, with some even predicting a sentence under six months. However, the Department of Justice had sought a three-year imprisonment term. In contrast, my legal representation had advocated for an 18-month sentence in our plea agreement negotiations.

Rate cut wen?

According to Kalshi and Polymarket traders, there’s no sign of an anticipated rate cut at present, markedly differing from the consensus in the CME FedWatch poll. The latter predicts a rate reduction by autumn, with another potential cut identified by winter.

On the Kalshi platform, which is the sole U.S.-regulated marketplace for these contracts, users estimate a 32% probability for no cuts occurring. A 29% likelihood is attributed to one cut happening. The probability for two cuts is ranked third at 24%.

At Polymarket, there is a 30-30 split among bettors regarding the number of cuts that will occur. Some wager on no cuts at all, while others place their bets on there being two cuts.

Economists are split on whether the Federal Reserve will lower interest rates in 2024.

Based on current economic indicators, including high inflation, a robust economy, and a steadfast labor market showing signs of slight weakening, it appears that loosening monetary policy might not be required at this time. Nevertheless, the consistency of these trends throughout the year introduces some uncertainty.

As a crypto investor, I’ve come across the perspective of some market analysts, including Steve Englander from Standard Chartered Bank, who believe there’s a possibility for the Federal Reserve to reduce interest rates as early as July. They base their argument on the potential for a slowdown in core inflation and seasonal factors that could be impacting current inflation readings. In simpler terms, they think that underlying price trends may be weaker than they appear right now due to temporary factors.

The CME’s FedWatch, a poll of market participants, paints a different picture.

The Federal Open Market Committee’s September 18 meeting has a 54% probability of seeing the first interest rate reduction. There is increasing belief that additional cuts, possibly even a third one, may be implemented by December.

As an analyst, I would find it intriguing to monitor this disparity between the insights of CME’s FedWatch participants and those of prediction market observers. The former group represents market players who place bets on the Federal Reserve’s future actions based on CME’s data. The latter cohort consists of individuals relying on real-time information from various prediction markets to gauge the probability of various economic outcomes. Analyzing their differing perspectives may shed light on unique insights or biases within each community, ultimately contributing to a more comprehensive understanding of market sentiment and expectations.