Ahead of November’s midterm elections, prediction markets are ubiquitous, and manipulating election contracts can be accomplished with a small investment.
A new study by the Anti-Corruption Data Collective, shared exclusively with CNBC, found that with a bet of $3,500 (which is also the limit for individual campaign contributions allowed under U.S. federal law), 97% of medium-term related prediction markets could move more than 5 cents. The coalition’s report, whose mission is to crack down on corruption, raises questions about how easily individuals can manipulate election-related markets to produce real-world outcomes.
“Manipulated prices can ripple through the information ecosystem as if they reflect real momentum,” the report says. “This situation not only exists in most markets, it may already be happening.”
The report comes as prediction markets are rapidly gaining popularity across the United States, offering thousands of election-related markets for bettors to participate in. Top prediction markets such as Karshi and Polymarket offer yes or no contracts that users can buy to predict whether something will happen or not.
Prediction markets have also come under scrutiny in Washington, with some lawmakers warning they are susceptible to manipulation. Other markets have also been heavily criticized, including those offering contracts related to elections, celebrity deaths, and wars.
ACDC also found that not all markets behave the same way. The report found that weaker markets are cheaper to operate, with 806 of the 1,094 markets studied with prices below 5 cents costing less than $100 to move a 5 cent. Even a large-scale move doesn’t have to be that expensive. 94% of the market moves 10 cents under a $1,000 bet. In most markets, you’ll move 25 cents after you bet $25,000.
In this report, Polymarket identified 353 instances where one or two wallets moved the prediction market by more than 5 cents during this election period.
In those cases, 211 remained at the price after the initial move, 62 continued to move, and 80 returned to its original position.
This report also examines specific price trends in the Texas Senate primary.
One wallet bet $1,760 on Polymarket in December, with the bet on eventual Republican candidate and Texas Attorney General Ken Paxton dropping from 55 cents to 50 cents, according to the report. 14 hours later, another wallet staked $1,240, and Paxton’s price was back from 52 cents to 63 cents. Four days after the push, Newsweek reported that Polymarket had Paxton in the lead. Prices remained in the 60s for six weeks, the report said. Paxton’s price never went below $55 until it was pushed by another wallet.
Additionally, on February 7, three wallets on Polymarket moved prices in two different markets, one asking whether Paxton would win and another asking whether Rep. Wesley Hunt (R-Texas) would win the Senate primary.
Two wallets bet $23,953, pushing Hunt up 10 cents on Polymarket. ACDC observed similar changes in calci. Over the next two hours, another wallet on Polymarket spent $38,830, pushing Paxton’s contract down by 8 cents. According to the report, the price of Hunt’s Victory fell, but two days later, the price rose again on both Polymarket and Karshi due to the impact of some wallets.
The next day, 17 wallets, including automated wallets on Polymarket, pushed down Paxton’s price. The report also found that the price has since returned to normal as Paxton continues to lead in the polls.
“Two large five-digit trades by one or two wallets that ultimately go against polling, political momentum, and the bottom line, such as the Feb. 7 trade between Hunt and Paxton, are difficult to explain without market-moving incentives,” the report said.
“Rather than being active operators, these wallets may have been unlucky risky bettors who believed their bets and positions would be profitable,” the report said. “However, the routine citation of projected market prices in the news media regarding the Texas race provided an entry point for perception buying that also explains these large trades.”
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