"Users continue to flock"...Virtual asset-based prediction market, 90% incur losses

▲ Prediction market, Bitcoin (BTC)/AI generated image

The virtual asset-based prediction market is experiencing an unprecedented boom. However, analysis results show that the majority of users are actually incurring massive losses.

On May 4 (local time), BeInCrypto cited a Wall Street Journal (WSJ) report, stating, "An analysis of transaction data from users of leading prediction market platforms, Polymarket and Kalshi, revealed that approximately 90% of users are recording negative returns." The prediction market operates on a structure where users bet on the occurrence of specific events. While trading volume has surged recently due to major political events, a clear polarization has emerged where profits are concentrated among a few experts.

The survey results showed that the majority of Polymarket users hold balances lower than their initial capital, with median losses amounting to hundreds of dollars. Conversely, over half of the total profits are monopolized by large accounts, representing less than 1% of users. This suggests that professional traders using sophisticated algorithms are absorbing funds from individual investors. Kalshi also shows a similar trend, with users' capital continuously being eroded by a small number of those with superior information.

Thin liquidity and wide spreads were identified as major stumbling blocks for the prediction market. The high costs incurred when users place or close bets make it very difficult to generate long-term profits. Experts warned that while the prediction market is gaining attention as a tool for collective intelligence, it poses high risks to the general public, akin to gambling. The Commodity Futures Trading Commission (CFTC), a regulatory body, is also closely monitoring its speculative nature and deficiencies in investor protection.

Within the virtual asset ecosystem, doubts about the soundness of prediction markets are growing. Concerns about market manipulation have also been raised, as funds are concentrated on political propaganda or provocative topics rather than on predicting the prices of major assets like Bitcoin (BTC) or Ethereum (ETH). While platforms have stated they will implement measures to protect users, the prevailing opinion is that it is insufficient to bridge the information gap with professional traders.

For the growth of the prediction market not to be a mirage, transparent operations and a fair trading environment must first be established. Users should clearly recognize the asymmetric structure of the market and approach it cautiously, rather than being lured by high returns. If the current structure, which sharply divides into a few winners and many losers, is not improved, the sustainability of the prediction market will inevitably be threatened.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*