A study highlighting alleged manipulation of Polymarket’s 5-minute Bitcoin (CRYPTO: BTC) binary contracts has sparked fresh scrutiny for the decentralized prediction platform.
Last-Minute Deception?
The paper, co-authored by researchers from Stanford University and Singapore Management University, was published on July 1 and first reported by Bloomberg.
The contract in question is binary. It delivers a $1 payout if Bitcoin’s price at the end of the 5-minute interval exceeds its price at the start of the interval; otherwise, the payout is $0
The study found that traders game the contract by buying BTC on Binance during the closing seconds to influence the settlement price higher than the opening price.
The Two-Trade Tactic
Ruizhe Jia, one of the researchers, described a two-trade manipulation tactic. Traders first buy the “Up” outcome on Polymarket, then purchase Bitcoin on Binance in the final seconds to push the price across the settlement threshold.
Jia posted a chart highlighting sudden order flow spikes in the final 10 seconds, noting that this pattern didn’t appear before the bet launched.
Additionally, the study found that price moves in the closing seconds are quickly reversed — a pattern that did not exist earlier.
The analysis found that manipulators profited $8.2 million, while ordinary traders lost $7.6 million over two months.
Polymarket didn’t immediately return Benzinga’s request for comment.
The Big Debate
Prediction markets, including Polymarket, are under growing scrutiny. Large, suspiciously well-timed bets on military operations in Iran and Venezuela have raised major red flags.
Earlier this year, a U.S. soldier was charged with allegedly using classified information to profit from a bet linked to the capture of Venezuela’s ousted leader, Nicolás Maduro.
In April, the Senate unanimously adopted a resolution banning Senators, officers, and staff from engaging in prediction markets. Bipartisan legislation has also been introduced to extend the ban across the entire executive branch.
However, Robin Hanson, known for his pioneering work in the field of prediction markets, has accused critics and the media of exaggerating "imperfections" in the industry. He told Benzinga that a small number of events have been reported out of proportion to their actual importance.
Price Action: At the time of writing, BTC was exchanging hands at $64,087.38, down 1.03% over the last 24 hours, according to data from Benzinga Pro.
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