A new academic study has raised concerns about Polymarket’s short-term Bitcoin prediction markets, suggesting that some traders may be able to manipulate prices and profit at the expense of ordinary users.
The research, conducted by experts from Stanford University and Singapore Management University, focused on Polymarket contracts that ask users to predict whether Bitcoin will end above or below a certain price within a five-minute period.
According to the study, the issue is not with prediction markets themselves but with the way these contracts are settled.
Currently, the contracts rely on Chainlink price feeds that reflect Bitcoin’s market price at the end of each trading window. Researchers argue that this creates an incentive for traders holding large positions to influence Bitcoin’s spot price shortly before the contract expires.
If successful, those traders could push the final settlement price in a direction that benefits their positions, allowing them to earn profits while other participants absorb the losses.
After analyzing trading activity before and after Polymarket introduced these contracts in July 2024, the researchers identified patterns they believe are consistent with settlement-price manipulation.
The study found that trading activity in Bitcoin’s spot market often increased sharply just before contract settlement. Prices also tended to reverse soon after the contracts expired, a behavior researchers say may indicate that traders were temporarily influencing the market to affect settlement outcomes.
Based on their analysis, the researchers estimate that approximately $1.28 million was transferred from regular traders to more sophisticated participants who took advantage of the settlement process during the period studied.
Importantly, the researchers did not conclude that prediction markets are inherently flawed. Instead, they argued that contract design is the key factor in reducing manipulation risks.
One of the study’s most notable findings was that extending contract duration from five minutes to fifteen minutes significantly reduced the unusual trading patterns. Researchers also suggested alternative settlement methods, such as using time-weighted average prices rather than a single price snapshot, to make manipulation more difficult.
The findings may have implications beyond cryptocurrency markets.
Traditional financial exchanges, including Nasdaq and Cboe, have explored event-based contracts linked to market outcomes. As these products become more common, researchers argue that settlement design will play an increasingly important role in protecting market integrity.
Despite these concerns, prediction markets continue to experience rapid growth.
Platforms such as Polymarket and Kalshi have attracted billions of dollars in trading volume, driven by growing interest in markets tied to politics, economics, sports, and major global events. The expanded 2026 FIFA World Cup has been one of the biggest drivers of recent activity, generating billions of dollars in combined trading volume across the two platforms.
At the same time, the industry is facing increasing regulatory scrutiny in the United States.
Several states have challenged the legality of prediction market operators, while the Commodity Futures Trading Commission (CFTC) has argued that federally regulated event contracts fall under its authority rather than state gambling laws.
As legal and regulatory debates continue, the new study adds another layer to the discussion by highlighting how market structure and settlement design can influence fairness and trading behavior.
For now, the researchers believe that simple changes to contract rules could significantly reduce manipulation risks while allowing prediction markets to continue growing as a popular financial and forecasting tool.
