Whale Disruption Trumps Market Success Predicted to Skyrocket Manipulation or Misinterpretation

Coin World reports:
Recently, on Polymarket, a cryptocurrency-based prediction market, the odds of former President Donald Trump winning the election have increased due to a small group of traders or even possibly a single individual placing a large number of bets. This phenomenon has attracted widespread attention and discussion. Supporters of Vice President and Democratic candidate Kamala Harris have expressed concerns on the X platform (formerly Twitter), claiming that the market is being manipulated. The Wall Street Journal has also speculated that the surge in the odds may be a result of four Polymarket accounts creating an illusion by collectively investing approximately $30 million worth of cryptocurrency in bets on Trump winning.
Indeed, it is possible that someone has placed a significant wager on Trump. However, this does not necessarily imply any wrongdoing.
Firstly, it is evident that Trump’s odds are not only rising on Polymarket. Currently, the trading price for Trump’s “winning” shares on Polymarket is approximately 59.9 cents, indicating that the market believes he has a 59.9% chance of winning (each share will pay out $1 if the prediction comes true, otherwise zero). PredictIt, a US platform with strict betting limits (theoretically unaffected by Polymarket whales), gives Trump a 56% chance of winning. Kalshi, a regulated US platform, gives a probability of 58%. If you consider this price behavior as “manipulation,” you might wonder why Kalshi, a platform that reports manipulative behavior, has similar trading conditions to Polymarket.
Online betting companies also show Trump leading: BetOnline gives 59%, Betfair gives 55%, Bovada gives 60%, and so on. Moreover, Trump’s support is also increasing in comprehensive polling data, so his real chances of winning may be increasing. Trump’s rise in the prediction market aligns with Harris’s poor performance in a Fox News interview, and new polls show an increase in Trump’s support.
Secondly, the fact that a single anonymous entity has placed a large number of bets is not evidence of “manipulation.” Bloomberg columnist Matt Levine explicitly states: “This doesn’t look like manipulation: Fredi9999 isn’t buying recklessly to push up the price but rather carefully buying in a way that looks designed to get a lot of Trump contracts for his money.” The simplest explanation is that a trader genuinely believes Trump is undervalued and is willing to place significant bets on it.
Just because there is a large buyer does not mean there is manipulation. The entire premise of the market is to compress available information into prices by incentivizing those willing to take risks to express their views. The identity or distribution of traders is irrelevant; theoretically, anyone has an incentive to extract information from the market by betting against the market value of their assets when they believe their fair value differs. Markets do not have to be democratic to be reliable. They just need the most knowledgeable participants to financially express their views. A single trader having concentrated ownership of assets in no way makes the prices illegitimate. No one questions the price of Apple stock because Warren Buffett’s Berkshire Hathaway owns a lot of it.
Markets never “wrong.” They simply reflect all available information. If you are correctly contrarian to the market’s view, you can be rewarded by betting on your beliefs. Due to regulations and settlements, US users cannot use Polymarket, but they have other choices. If you believe that a large account on Polymarket significantly boosted the price of Trump contracts and is mistaken, you can simply bet against him, her, or them by going long on Harris. Although this is not risk-free—Harris still needs to win for your bet to pay off—if you believe her “true” odds are 55%, then you are buying something worth 55% at a price of 40% today. While you may not want to do it, other market participants will. So if the Polymarket whale indeed has misinformation, now that we know there is one (possibly misinformed) whale, you would expect the odds to decrease as traders incorporate this new information. Unless prediction markets are generally unreliable and whales have an outsized impact on them, which is not the case.
But let’s suppose that the trader is indeed spending large sums to “pump up the market,” making Trump’s victory seem more likely.
Firstly, this may not even be advantageous for Trump. It could lead to complacency among his supporters, reducing their voter turnout on election day (or even possibly motivating Harris supporters to vote). Secondly, you could easily spend that $30 million on advertisements in battleground states, substantially impacting the election. Polymarket is still a relatively unknown platform, so any PR benefits gained from slightly moving the odds are difficult to quantify.
Furthermore, as Polymarket pointed out in a detailed blog post on Monday refuting the manipulation allegations, “If any user has reason to believe that trading for any reason other than financial reasons is happening, they can easily adjust the odds by betting against the whale.” Why pay attention to prediction markets? In terms of elections, markets are faster than experts, polls, or media in conveying information. This trend will continue into the November election, not only in major presidential contracts but also in state-level contracts. Traders have financial incentives to reveal non-public information, so election observers will be able to see real-time updates of the winning probabilities for all 50 states without having to wait for Fox or CNN. By leveraging the enthusiasm of traders, markets can and do outperform designated experts.
Polymarket has consistently been a more reliable source of information. Even before Joe Biden’s disastrous debate performance, Polymarket traders indicated a significant probability of his withdrawal, which mainstream experts ignored.
Additionally, contracts like the winner of the election provide us with potentially more useful information outputs than mere poll aggregations. National polls showing Harris leading 49% to Trump’s 47% do not tell us much about her actual chances of winning: what matters is the total electoral votes and, especially, what will happen in battleground states. The highly liquid Polymarket election winner contracts compress all this information and provide us with a simple estimate of the chances of each candidate winning.
Remember, a 60% to 40% lead on prediction markets is not the same as a 60% to 40% lead in polls. Prediction markets should be seen as high-beta derivatives of polls. If Trump is leading Harris by 51% to 49% in national polls, his actual chances of winning would be 90% or higher. In prediction markets, probabilities of 40% to 60%, 45% to 55%, or 60% to 40% are all coin toss territories. So Trump’s surge on Polymarket does not reflect a massive reevaluation of his chances of winning. Regardless of the presence of Polymarket whales, this is still an extremely competitive race.