The world of U.S. politics could only be described as tumultuous following President Donald Trump’s debate with former vice president Joe Biden and Trump’s subsequent announcement that he has tested positive for Covid-19.
Cryptocurrency-betting enthusiasts are taking note, with futures trading products tied to Trump reflecting the volatile political atmosphere. Crypto derivatives exchange FTX is allowing gamblers to bet their digital assets on the two presidential candidates.
Crypto political betting
TRUMP 2020 and BIDEN 2020 are futures contracts launched by FTX that can be cashed in for $1 if a buyer’s candidate wins the 2020 U.S. presidential general election, or expire to $0 if not. This means that the contracts represent traders’ views of each candidate’s odds of winning the election. A contract that trades at 50 cents means traders view that candidate has a 50% probability of winning.
Prior to the debate, TRUMP futures traded at 44 cents, but the price fell nearly 7% during his on-stage clashes with Biden. In the 24 hours following the president’s Covid infection announcement, prices seesawed dramatically, plummeting to a nadir of 33 cents before recovering to 39 cents at the time of writing.
An FTX spokesperson told Forkast.News that the platform saw about $2 million in total trading volume in its TRUMP contract following the announcement by Trump.
Meanwhile, BIDEN futures jumped in value during the debate and showed inverse correlation during the weekend as the President’s Covid results made their impact. BIDEN futures are currently trading at 60 cents at time of writing, reflecting investors’ views on Biden’s debate performance as well as his likelihood to win next month’s election.
Prediction markets like those offered by FTX and Predictit offer an alternative way of gauging people’s confidence in presidential candidates. While conventional polls may offer insights into how voters are reacting to political events as they unfold, they may not be as responsive or honest as real-time contracts where people bet real money.
Polls vs prediction markets
Confidence in public opinion polls dropped after the 2016 election. In 2016, national and state polling almost consistently showed former Secretary of State Hillary Clinton as being favored to beat Trump. Some polls reported her chances of winning as being over 70%, and even 99%.
But the polls turned out to be wrong. Pollsters had not taken into account a number of factors, including people’s unwillingness to respond to polls, responders being dishonest, and polling samples being skewed as pollsters failed to identify likely voters — all of which likely contributed to inaccurate outcomes, according to the Pew Research Center.
“There is a great deal of speculation but no clear answers as to the cause of the disconnect, but there is one point of agreement: Across the board, polls underestimated Trump’s level of support,” according to the Pew Research Center’s 2016 report.
Could public opinion polls this time around be a more accurate reflection of voters’ true state of mind?
A survey conducted after the debate but before Trump was hospitalized after testing positive for Covid showed Biden ahead of Trump by 14 points, a 53-39% advantage for the Democratic candidate. The poll conducted by NBC News and the Wall Street Journal represented Biden’s largest lead during this campaign so far.
Chinese friends “so will Biden win”— Matthew Graham (@mattysino) October 3, 2020
Me: opens up FTX app pic.twitter.com/1EpKNa0vsv
While polls show some degree of similarity with the prediction market’s activity, online gambling is a legal gray zone in the U.S. FTX’s services are not available in the U.S. or to its citizens nor those of Cuba, Crimea and Sevastopol, Iran, Syria, North Korea, or Antigua and Barbuda.
FTX told Forkast.News that the company geoblocks the U.S., and also has know-your-customer (KYC) procedures that screen non-U.S. traders.
In 2012, the U.S. Commodity Futures Trading Commission prohibited political event predictions, stating they could potentially be used in ways that would have an adverse effect on elections, “for example by creating monetary incentives to vote for particular candidates even when such a vote may be contrary to the voter’s political views of such candidates.”
But according to FTX, that may not be the case all the time. “Especially in a hotly debated election like this one, it can be helpful to have expectations going into the election to serve as a baseline for early returns,” a spokesperson for FTX said.
Since U.S. citizens are prohibited from using the platform, it may not reflect the real sentiment of people who are eligible to vote in the election. But despite these restrictions, others believe that they still serve a role in determining public sentiment.
“There are 25 or more years of data that show prediction markets do a better job predicting outcomes than polls,” said Dr. Emile Servan-Schreiber, founder and CEO of Lumenogic and an expert in prediction markets in a 2014 interview with Politico.
FTX told Forkast.News that the BIDEN and TRUMP contracts allowed users to react fairly quickly to developing news. “They are faster acting than pools and more accurate than raw polls, although a sophisticated model based on polls is close,” said the FTX spokesperson, who declined to be named.
Trump has previously stated clear opposition to cryptocurrencies including Bitcoin and Libra, voicing support for the USD instead.
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity,” Trump wrote on Twitter last year.
Crypto prices dropped by 6% on Friday, though it may have been more to do with the owners of leading crypto exchange Bitmex getting arrested than Trump’s Covid reveal.