Markets

What is a prediction market? How it works and what are its uses

Published

6 months ago

23 July, 2024

What is a prediction market? How it works and what are its uses

Prediction markets have been making headlines recently after demonstrating an uncanny ability to forecast global events with a level of accuracy never seen before by traditional bookmakers or even poll results.

With the leading forecast market Polymarket With early predictions that Joe Biden would withdraw from the US presidential race, people have become increasingly interested in the “wisdom of crowds” and the potential applications of these markets.

What is a Prediction Market?

A prediction market is a financial market in which people speculate on the outcome of all kinds of events by buying and selling stocks that represent the probability of certain outcomes.

For example, the Polymarket prediction market allows users to buy and sell stocks or contracts on events ranging from political elections, to sports matches, to the results of music award ceremonies, and to the prices of cryptocurrencies such as Solana’s All-Time High Odds before the end of the year.

Polymarket is the news.

He put a 10%+ chance of Biden dropping out, even before the debate. Meanwhile, the mainstream media was claiming Biden’s senility was a conspiracy theory.

No journalists, just cryptocurrencies. photo.twitter.com/Vlb4sN6rgr

— Balaji (@balajis) July 21, 2024

Because these prediction markets involve large numbers of trained and methodical analysts publicly speculating on the outcomes of major events, with a financial incentive to express their true opinions, these markets may be useful in indicating public sentiment and perhaps even offering accurate forecasts in some cases.

Historical context of prediction markets

Prediction markets are by no means a new invention and date back at least to the 1500s, when people used to speculate on the outcome of papal elections. Wall Street has been betting on political elections since at least the 1800s, and there is evidence of prediction markets betting on elections in Canada and Great Britain during the same time period.

However, in modern times, the nature of these markets has become significantly more complex and sophisticated.

Let’s take a look at how these prediction markets work.

How Prediction Markets Work

Typically, a prediction market allows users to buy a contract or stock that represents an outcome. A market will have a specific set of events with two or more outcomes that users can trade.

For example, a market might speculate on the outcome of an election with two possible outcomes. It will open with contracts available for purchase that support the victory of one of the two candidates, and these shares may begin to trade at equal values.

So, for example, a win for Candidate A will result in a certain number of contracts at a price of $0.50, while a win for Candidate B will result in the same number of contracts at the same price.

As users begin to trade the contracts, the value will swing in one direction or another, indicating the general sentiment of the crowd speculating on the event and giving viewers an idea of what the market thinks will happen.

Polymarket’s Odds of a TikTok Ban in the US Demonstrated Through Contract Stock Prices | Polymarket

Unlike a traditional bookmaker who provides odds on these events, users of a prediction market can make swings in trading contracts, realizing profits or covering losses at set points throughout the life of the event.

In cryptocurrency, these markets often use a hybrid decentralized model. While the platform staff still decides which events are traded, the community itself can provide liquidity to the market, attempting to profit from it.

We wrote an extensive article Polymarket Forecast Market Guideincluding the nature of the profit arising from the provision of liquidity.

Types of Prediction Markets

There are four main types of prediction markets in 2024. The following list refers to the general type of platform, while later we will explore specific types of betting models.

Fixed odds betting

Fixed odds betting is probably the type of market most people are familiar with, odds set on an event by a traditional bookmaker or sports betting website. Bettors place bets and cannot exchange or sell their contracts, and payouts are calculated based on when bets are placed by bettors.

Continuous Double Rod (CDA)

CDA markets allow users to buy and sell orders at any time, allowing arbitrage and swing trading of contracts until the end of the event. Polymarket is one such market, as Iowa Electronic Markets uses fiat instead of cryptocurrency.

Automated Market Maker (AMM)

AMMs like Augur and Gnosis use algorithms to provide liquidity and automatically set prices based on supply and demand for contracts. These are more decentralized than crypto prediction markets like Polymarket, which have more human oversight and can be considered hybrid-decentralized, or perhaps simply centralized.

Parimutuel Markets

Pari-mutuel markets like the Hollywood Stock Exchange pool bets and calculate winning odds based on the distribution of bets on different outcomes. Winners share in the final prize pool of profits.

Types of contracts/bets available on prediction markets

There are different ways in which a contract can unfold in a prediction market, or to put it simply, there are different types of betting models available.

Binary yes/no results

A binary market is the simplest type of market or contract that exists in a prediction market.

Category Markets

Categorical markets have multiple possible outcomes rather than a simple yes or no, allowing for more diverse trading options.

Scalar markets

Scalar markets, or scalar bets, offer continuous outcomes within a range. For example, a market could trade based on the price of Bitcoin by the end of the year, with options ranging from $20,000 to $10,000. Instead of having multiple fixed options, users can buy contracts based on their estimate of the correct answer, and the closer they are to being correct when they sell their contracts, the more their contracts are worth.

Best Crypto Prediction Markets in 2024 and Beyond

Now that we know how cryptocurrency prediction markets work, let’s take a look at some of the best cryptocurrency prediction markets available right now.

It is worth noting that cryptocurrency prediction markets are still a relatively new addition to the ecosystem and none of the markets listed below currently offer advanced trading features such as stop loss or take profit automation.

Polymarket

Polymarket is a cryptocurrency prediction market based on the Ethereum and Polygon blockchain networks and interfaces with Web2. Users trade USDC stablecoin contracts. Polymarket is now the largest cryptocurrency prediction market by trading volume.

Augur

Augur is a completely decentralized market predictions on the Ethereum market. Augur works programmatically, meaning there is little to no human oversight involved. Smart contracts read oracles, autonomous tools that feed news and market information to contracts, in order to determine what the outcome of an event will be to pay out winnings.

Spirit of the times

Zeitgeist is a prediction market based on the Kusama network. Users can benefit from a variety of betting models and the market is decentralized. Like Augur, the platform uses real-time oracles to feed live data to pre-programmed smart contracts.

Will Cryptocurrency Prediction Markets Be Valuable?

For a while, cryptocurrency prediction markets went unnoticed, often allowing a niche community to benefit from the so-called “wisdom of the crowd.”

However, with all the hype that has recently built up around prediction markets, much of it stemming from some cautious campaign insights from Polymarket, the landscape has seen a major shift, with mainstream investment and high trading volumes now taking over.

It will be interesting to see if prediction markets become a more popular indicator for predicting cryptocurrency prices in retail and institutional markets. If so, it is possible that they will suffer from price bias, which means that prediction markets could influence actual cryptocurrency prices, which in turn could cause predictions to be inaccurate as the market adjusts to them in real time.

In any case, the accuracy that prediction markets sometimes demonstrate is fascinating, and these markets are likely to become a key indicator for strategists and investors around the world.

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Markets

Bitcoin, Ethereum See Red as Markets Crash on Volatility

Published

6 months ago

1 August, 2024

Financial Block Staff

Bitcoin, Ethereum See Red as Markets Crash on Volatility

Bitcoin AND Etherealalong with the rest of the top 10 cryptocurrencies by market cap, appear to be in hibernation on Thursday morning.

At the time of writing, the Bitcoin Price is still below $65,000 and 2.2% lower than it was this time yesterday, according to CoinGecko data. Things are worse for the Ethereum Pricewhich is 3.7% lower than 24 hours ago at $3,185.22. The drop in ETH’s price is identical to that of Lido Staked Ethereum (stETH), a liquid staking token for Ethereum.

In recent days, falling prices have led to the liquidation of derivative contracts worth $225 million, according to Coin glassAnd about half of that, about $100 million, was liquidated in the last 12 hours.

When a trader is liquidated, it means that their position in the market has been forcibly closed by an exchange or brokerage due to a margin call or insufficient collateral. Margin is especially important when it comes to leveraged positions, which allow traders to control a multiple of their deposit, such as opening a $10,000 position with only $1,000 in their account.

Now that Bitcoin has been in the red for three days in a row, there is a chance that the world’s oldest and largest cryptocurrency could sink even further, BRN analyst Valentin Fournier said in a note shared with Decrypt.

“Bitcoin has closed in the red for three days in a row, with one-way trading showing limited resistance from bulls. Ethereum had a slightly positive Monday with strong resistance from bears who have won the last two days,” he wrote. “This momentum could take BTC to the $62,500 resistance or even the $58,000 territories.”

Looking ahead, Fournier said BRN’s strategy will be to “reduce exposure to Bitcoin and Ethereum and find a better entry point after the dip.”

This is despite Federal Reserve Chairman Jerome Powell’s comments yesterday on interest rates being widely regarded as accommodating and indicative of FOMC rate cuts in September.

Singapore-based cryptocurrency trading firm QCP Capital said the rally in stocks, which sent the S&P 500 up 1.6% from Wednesday’s close, was not felt in cryptocurrency markets.

“Cryptocurrencies have seen a broad sell-off overnight and into this morning,” the firm wrote in a trading note. “The market remains poised as traders pay close attention to daily ETH ETF outflows and further supply pressure from Mt Gox and the US government.”

Meanwhile, the other top-ranking coins are showing mixed performance.

Solana (SOL) is down 7.2% since yesterday to $169.13. Things are even worse for its most popular meme coins. In the past 24 hours, the most popular meme coins Dogwifhat (WIF) are down 12% and BONK (BONK) is down 9%, according to CoinGecko data.

Their dog-themed competitor, Ethereum OG Dogecoin (DOGE), the only meme coin in Coingecko’s top 10, is down nearly 4% since yesterday and is currently trading at $0.1205.

XRP (XRP) dropped to $0.608, which is 7% lower than it was at this time yesterday.

Binance’s BNB Coin (BNB) has kept pace with BTC and is currently trading at $571, down 2.4% from yesterday. Toncoin (TON), the native token of The Open Network, is down just 0.4% over the past day.

This leaves the stablecoins USDC (USDC) and Tether (USDT), both of which are stable as they maintain their 1:1 ratio with the US dollar.

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Markets

XRP Market Activity Drops During Ripple-SEC Talks: Price Steady

Published

6 months ago

1 August, 2024

Financial Block Staff

Ripple (XRP) Market Witnesses Calm During SEC-Ripple Meeting

The Securities and Exchange Commission (SEC) will hold another closed-door meeting with Ripple on Thursday, as the market hopes for a possible resolution to the legal battle between the two entities.

However, the cryptocurrency market remains relatively bearish, with the price and trading volume of XRP down in the last 24 hours.

Ripple holders take no risk

At press time, XRP is trading at $0.60. The altcoin’s price has dropped 6% over the past 24 hours. During that time, trading volume was $27 million, down 27%.

The SEC met before with the digital payment company on July 25. While the outcome of that meeting remains unknown, the Sunshine Act Notice for Thursday’s meeting includes one additional topic of discussion from the July 25 closed meeting: the instituting and resolving injunctive relief. That has market participants speculating whether a settlement is imminent.

In an exclusive interview with BeinCrypto, Ryan Lee, Lead Analyst at Bitget Research, noted that:

“This meeting will discuss possible resolution options for the Ripple Lawsuit. The founder of Ripple Labs said that a legal settlement could be announced soon. If an official settlement plan is released, it could positively impact XRP’s price movement.”

However, an assessment of XRP’s price movements on a 4-hour chart shows a spike in bearish bias as the market awaits the outcome of this crucial meeting. Its Moving Average Convergence/Divergence (MACD) indicator readings show that its MACD line (blue) has crossed below its signal line (orange).

XRP 4 Hours Analysis. Source: Trading View

Traders use this indicator to gauge price trends, momentum, and potential buying and selling opportunities in the market. When an asset’s MACD is set this way, it is a bearish signal that suggests selling activity is outweighing buying momentum.

Additionally, the altcoin relative strength index (RSI), at 46.08, is currently below its neutral 50 line and in a downtrend. This indicator measures overbought and oversold market conditions for an asset.

To know more: How to Buy XRP and Everything You Need to Know

xrp rsi XRP 4 Hours Analysis. Source: Trading View

At 43.83 at the time of writing, XRP’s RSI suggests a growing preference among the market participants for tok in distribution.

XRP Price Prediction: Derivatives Traders Exit Market

The XRP derivatives market has also seen a decline in trading activity over the past 24 hours. According to Coinglass, derivatives trading volume has plummeted 18% and open interest has dropped 10% during that period.

Open interest refers to the total number of outstanding derivative contracts, such as options or futurethat have not yet been resolved. When it drops, traders close their positions without opening new ones. This is a bearish signal that reflects a lack of confidence in any potential positive price movement.

According to Lee, the outcome of the meeting with the SEC “would have a significant impact on the price movement of the token.” If the outcome is favorable, the price of the token could rise towards $0.75 in August.

To know more: Ripple (XRP) Price Prediction 2024/2025/2030

XRP Price Prediction XRP 4 Hours Analysis. Source: Trading View

On the other hand, if no favorable resolutions are reached, the price could plummet to $0.50.

Disclaimer

In line with the Trust Project guidelines, this price analysis article is for informational purposes only and should not be considered financial or investment advice. BeInCrypto strives to provide accurate and unbiased reporting, but market conditions are subject to change without notice. Always conduct your own research and consult a professional before making any financial decisions. Please note that our Terms and conditions, Privacy PolicyAND Disclaimers They have been updated.

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Markets

Bitcoin’s Dominance Hits Three-Year High, But Analysts Say Altcoins Are Ready to Rebound

Published

6 months ago

1 August, 2024

Financial Block Staff

Bitcoin's Dominance Hits Three-Year High, But Analysts Say Altcoins Are Ready to Rebound

Bitcoin is now the dominant force in the cryptocurrency market, surpassing 53% of the total cryptocurrency market, a stronger share than it has been in the past three years.

Bitcoin’s market cap now stands at $1.27 trillion, second according to CoinGecko data. In contrast, the total cryptocurrency market cap is $2.43 trillion, with Ethereum occupying 15.9% of the market, worth $389 billion.

Bitcoin’s rise to dominance this year is unusual, as altcoins typically do better than Bitcoin in a bull market. While meme coins made a strong comeback during Bitcoin’s rally to all-time highs earlier this year, the so-called “wealth effect” It has not been appreciated as much by mid-range coins, such as Ethereum and Cardano.

“ETF flows fundamentally alter market dynamics,” he wrote Meltem Demirors, former chief strategy officer at CoinShares, tweeted Wednesday: “BTC gains no longer translate to alts and the longer tail of crypto.”

Bitcoin’s takeover has continued even as the market cap of Tether (USDT) continues to grow, the world’s largest stablecoin and the third-largest cryptocurrency after BTC and ETH. Stablecoins are backed by fiat currencies and are excluded from some measures of Bitcoin dominance due to fundamentally different value models.

The surge continued to pace even after the launch of Ethereum spot ETFs last week, which ironically culminated in a news sell-off event, and net outflows from new investment products since they were launched. This went against the predictions of K33 Search so far, which predicted that ETFs would catalyze ETH’s growth over the next five months.

Despite the poorer performance of the alts, there is reason to believe that they are ready to bounce back very soon.

CryptoQuant CEO Ki Young Ju said Tuesday that whales are “preparing for the next altcoin rally,” as limit buy orders for assets other than BTC and ETH are on the rise.

The executive shared a chart showing how the “cumulative difference between purchase volume and sales volume” has increased in recent months.

“The indicator measures the difference between buy and sell orders over a year,” CryptoQuant told Decrypt. A buy/sell order is a pre-set request to buy or sell a cryptocurrency if it hits a certain price level, which creates resistance and support levels.

“If the trend is up, it means that more people are placing buy orders, showing strong interest in buying,” CryptoQuant said.

By Ryan-Ozawa.

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Markets

XRP and SOL Retrace as BTC Price Drops to 2-Week Lows (Market Watch)

Published

6 months ago

1 August, 2024

Financial Block Staff

Bitcoin Returns Toward $60K, XRP Defy Negative Sentiment (Market Watch)

After Monday’s crash, in which BTC fell by several thousand dollars, the scenario has repeated itself once again in the last 12 hours, with the asset falling to a 2-week low of $63,300.

Alt coins followed suit, with most of the market in the red today. SOL and XRP lead the way from the higher cap alts.

BTC Drops To $63.3K

After a violent Thursday last week, when BTC crashed to $63,400, the asset went on the offensive over the weekend and surged above $69,000 on Saturday, as the community prepared for Donald Trump’s appearance at the 2024 Bitcoin Conference in Nashville.

His speech was followed by more volatility before the cryptocurrency settled around $67,500 on Sunday. Monday started off rather optimistically for the bulls as bitcoin hit a 7-week high of $70,000.

However, he failed to maintain his run and conquer that level decisively. On the contrary, he was rejected bad and dropped to $66,400 by the end of Monday. Tuesday and Wednesday were less eventful as BTC remained still around $66,500.

The last 12 hours or so have brought another crash. Bears have pushed the leading digital asset down hard, which has fallen to a 2-week low of $63,300 (on Bitstamp), leaving over $200 million in liquidations.

Despite the current rebound to $64,500, BTC’s market cap has fallen to $1.270 trillion, but its dominance over alts is recovering and has reached 52.6%.

Bitcoin/Price/Chart 01.08.2024. Source: TradingView

The Alts are back in red

Ripple’s native token has been at the forefront of the market challenge in recent days as pumped up to a multi-month high of over $0.66. However, its run was also interrupted and XPR fell by more than 6% in the last day to $0.6.

The other big loser among the larger-cap alternatives is SOL, which has lost 8% of its value and is now struggling to get below $170.

The rest of this altcoin cohort is also in the red, with ETH, DOGE, BNB, AVAX, ADA, SHIB, and LINK all seeing drops between 2 and 5%.

The total cryptocurrency market cap lost another $70 billion overnight, falling below $2.4 trillion today on CG.

Cryptocurrency Market Overview. Source: QuantifyCrypto SPECIAL OFFER (sponsored)
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