Political Predictions Drive Cryptocurrency Market Growth
In anticipation of the 2024 US presidential elections, cryptocurrency prediction markets have surged. Polymarket, the largest betting platform for event outcomes, recorded over $300 million in political event bets. The most popular market focuses on the November election results, boasting over $200 million in liquidity. As of early July, Polymarket estimated a 63% chance of Donald Trump winning and 18% for Joe Biden.
Varied Betting Markets
Polymarket offers more than just predictions on the election winner. For instance, a late May prediction speculated whether Trump would be jailed before the 2024 election. Bets increased following news of his financial fraud conviction. A positive outcome here means Trump spends at least 48 consecutive hours in custody before November 5. This prediction attracted almost $1 million in one day, with 16% of participants betting on this outcome.
High-Stakes Predictions
Another popular prediction involves Biden’s potential withdrawal from the presidential race. This market, with nearly $9 million in bets, had a 41% chance of this scenario as of July 1.
Cryptocurrency and Real-World Events
Polymarket enables cryptocurrency bets on real-world events. In May, it raised $45 million in an investment round led by Peter Thiel’s Founders Fund. Ethereum co-founder Vitalik Buterin and venture firm Dragonfly Capital also participated. The project has accumulated $75 million in total investments.
Beyond Political Events
Despite the influx of political betting liquidity, non-election prediction markets lag. For example, the Euro 2024 football championship prediction market holds less than $3 million.
Future of Prediction Markets
Buterin sees prediction markets as a primary application of cryptocurrencies in everyday life. He expects the sector to grow beyond political events. “I foresee greater interest in prediction markets. They will extend to conditional forecasts, decision-making, and other applications,” he said. Over time, this new social technology will offer significant value.
Bets as a Measure of Public Sentiment
Last year, Bitwise analysts predicted prediction markets would become a “killer app” for cryptocurrencies in 2024, with bets exceeding $100 million. “Decentralized prediction markets will dominate traditional and tournament-related betting,” their report stated. This growth will solidify prediction markets as tools for gauging public sentiment.
Strategic Information Source
Paradigm views prediction markets as strategic information sources for crypto companies. These markets help determine future industry regulations. Political dynamics directly influence legislative outcomes. “Congress’s regulation decisions will depend on which party controls it,” noted Paradigm analysts.
Prediction Markets Versus Polls
Experts argue that prediction markets might be more accurate than polls for election forecasts. Participants have financial stakes, providing reliable predictions. This makes prediction markets useful for both crypto entrepreneurs and the general public. “These markets offer more precise public sentiment data and forecasts than polls,” wrote Coindesk, quoting economist Robin Hanson.
Liquidity and Accuracy
Prediction markets can act as barometers of public sentiment, but liquidity remains crucial. Higher volumes lead to better predictions. Some markets suffer from low liquidity, limiting true expectation insights, as noted by Coingecko. Additionally, blockchain-based markets are niche. Not all political experts have cryptocurrency access, and not all crypto experts understand politics.
Regulatory Challenges
Betting enthusiasm conflicts with some regulators’ views on safety. Polymarket was fined $1.4 million by the CFTC in 2022 for unregistered off-exchange binary options trading. Now, the American regulator proposes banning event contracts, including political and sports bets, as reported by Bloomberg. This news impacted Polymarket’s valuation, which was nearing $1 billion before the second investment round.
Global Regulatory Concerns
Regulatory concerns extend beyond the US. In mid-June, Taiwanese prosecutors fined a Polymarket user for election betting. According to Cointelegraph, the user was charged with online election speculation, illegal in Taiwan. The man was fined $4,000 for two bets totaling $472 and $60.
