What Does the Polymarket Wash Trading Scandal Mean for Crypto Markets?
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What Does the Polymarket Wash Trading Scandal Mean for Crypto Markets?

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The predictive market platform has surged in popularity recently while forecasting high odds of victory for Donald Trump. But now its claims may be called into question at a highly critical time.

Yesterday, a report from Fortune revealed that two blockchain research firms have found evidence that Polymarket’s presidential election betting is full of illegal wash trading. That type of scandal could have far-ranging implications for crypto markets, as Polymarket operates on the Ethereum (ETH-USD) blockchain network. The predictive market platform has surged in popularity recently while forecasting high odds of victory for Donald Trump. But now its claims may be called into question at a highly critical time.

What the Polymarket Scandal Means for Crypto

In a nutshell, the firms allege that Polymarket has played host to illegal trading activity, which may have artificially inflated some of the platform’s numbers, thereby misleading investors. Wash trading is the act of falsely creating the illusion of high activity by simultaneously buying and selling a financial entity. It is a form of market manipulation and can be harmful to investors.

As the Presidential election has drawn closer, Polymarket has dominated news cycles by forecasting victory odds for Trump that have gone as high as 67%. But if the wash trading accusations are true, it could severely compromise the reliability of the platform. And since Polymarket requires users to deposit crypto in order to place bets, this development could also undermine public trust in crypto markets.

This isn’t the first time that Polymarket has come under fire for similar accusations. As Fortune reports, “Polymarket’s crypto design and offshore operations have drawn scrutiny from other quarters. This includes recent reports claiming there is manipulative trading on the site—most notably by a single French trader who allegedly caused Trump’s odds to soar.”

Why This Matters

Betting on the highly anticipated election has become extremely popular over the past few months, with the high odds for Trump likely compelling many people to stake some money on it. This trend has likely been beneficial for crypto markets, as Trump’s pro-crypto stance has helped boost Bitcoin (BTC-USD) and many of its peers. BTC prices have been rising all week, but after yesterday’s report, they have dipped.

Now that Trump’s chances of winning may not be as high as Polymarket forecasted, crypto prices are likely to be compromised. Between that and the undermining of public trust that is likely to ensue from the wash trading scandal, defi markets could be facing an uncertain future.

Tipranks’ Annika Masrani reports that “crypto growth Is inevitable – no matter who wins.” While that is likely true in the long term, in the short term, crypto prices are likely to dip as uncertainty mounts regarding the election. Trump Media (DJT) stock has been falling all day as momentum shifts away from Trump and short sellers increase their bets. The wash trading allegations have compromised faith in his victory, and right now, that is bad news for election betting and crypto.

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