The research examined contracts in which investors bet on whether the price of Bitcoin will close above or below a certain level after five minutes. Investors tend to influence the spot market just before expiration as contracts result in Chainlink price feeds based on the Bitcoin price at the end of each trading window. Analyzing transaction movements before and after Polymarket offered the contracts in July 2024, researchers detected sharp increases in order flow in the Bitcoin spot market just before expiration, followed by rapid price reversals. This picture was found to be consistent with maturity price manipulation.
The study estimated that this behavior transferred approximately $1.28 million from ordinary investors to manipulators during the sample period. According to the researchers, increasing the contract duration from five minutes to 15 minutes largely eliminated this effect.
The researchers argued that the results do not mean that prediction markets are inherently susceptible to manipulation, but rather that maturity design can reduce risk. The team cited longer maturity windows and alternative pricing methods such as time-weighted average price as possible solutions.
The findings may extend beyond crypto as well. Traditional exchanges, including Nasdaq and Cboe, also offered event contracts tied to asset prices, according to the study. This makes contract design an increasingly important issue as prediction markets expand into regulated financial markets.
Prediction markets recorded record trading volume in June as the expanded 2026 FIFA World Cup fueled activity across the sector. According to industry data, Kalshi processed approximately $9.4 billion in transaction volume during the month, while Polymarket International processed approximately $4.3 billion. The platforms' World Cup champion markets have since generated total volume in excess of $5.4 billion, with approximately $4.25 billion of this amount on Polymarket and $1.2 billion on Kalshi.
The growth of the industry has coincided with increased legal scrutiny. This year, several states in the US have taken steps against companies including Kalshi and Polymarket. The Commodity Futures Trading Commission (CFTC), however, argues that federally regulated event contracts fall under its exclusive jurisdiction rather than state gambling laws. The dispute is now working its way through the federal courts. The conflicting appeals rulings could lead to the U.S. Supreme Court deciding whether states or the CFTC have real authority over prediction markets, legal observers say.