Prediction markets are becoming a new frontier in the crypto economy, where the most knowledgeable traders are vying against casual retail bettors for profits.
Many users are acting more like sports bettors rather than disciplined traders, according to a Tuesday report by research firm 10x Research, which stated they are trading “dopamine and narrative for discipline and edge.” It noted: “Accuracy and profit are not driven by the crowd, but by a small, informed elite who price probability, hedge exposure, and extract premium from retail-driven longshots.”
The increasing liquidity and retail involvement are encouraging professional trading desks to boost their prediction market activities to exploit the spread and “misinformation asymmetry” created by this market setup, according to 10x.
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The report raises concerns for casual traders hoping to earn quick money on prediction markets, as blockchain data indicates that most users lose their initial investments.
Only around 16.7% of wallets on Polymarket show profits, while 83% have sustained losses, according to blockchain data from Dune.
Related: Prediction markets emerge as speculative ‘arbitrage arena’ for crypto traders
Perfect win rates fuel insider concerns
The impeccable performance of several prediction market accounts is sparking worries about possible insider trading, as some users seem to win every time.
Polymarket user pony-pony claims a 100% win rate with over $77,000 in realized profits by betting on events related to the artificial intelligence development company, OpenAI, according to prediction market data aggregator Polymarket Money in a Monday X post.
Another user, AlphaRaccoon, raised insider allegations after making over $1 million in a single day by successfully winning 22 out of 23 bets on Google search trends.
Meanwhile, concerns are growing over the accuracy of Polymarket data on third-party dashboards after a researcher from Paradigm identified a bug that doubles the reported trading volume, Cointelegraph stated earlier on Tuesday.
This bug artificially inflates the main volume metrics used to assess prediction market activity, including notional volume, which counts the number of contracts traded, and cashflow volume, measuring the dollar value at each trade, as noted by Paradigm researcher Storm in a Tuesday X post.
However, the inflated volumes on data dashboards are the result of miscalculations, not wash trading, which is an illegal practice involving the buying and selling of the same instrument to artificially inflate market activity.
The bug discovered by Paradigm has been “validated” by multiple data dashboards, including AlliumLabs and DefiLlama, which are now working to update their Polymarket dashboards to correct the double-counting error.
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