Stanford study says 5-minute Bitcoin prediction markets enable settlement manipulation
Stanford and Singapore Management University researchers found that Polymarket’s five-minute Bitcoin prediction contracts can incentivize spot-market manipulation near settlement. Because payouts depend on Bitcoin’s price at the end of a very short window, traders can push the price briefly before expiration and profit if the move affects settlement. After Polymarket launched these contracts in July 2024, the researchers observed unusual surges in Bitcoin order flow just before settlement, followed by quick reversals, consistent with manipulation. They estimated the behavior shifted about $1.28 million from regular traders to manipulators during the study period. Extending the contract length to 15 minutes largely removed the effect. The findings suggest prediction markets are not inherently flawed, but settlement design matters; longer windows and time-weighted pricing could reduce abuse.
