Analyst warns 99% may lose funds on prediction markets as insiders exploit data access and artificial volume signals.
A recent warning from a market analyst has raised concerns about the growing risks of trading on prediction markets. These platforms, once seen as tools for crowd-based forecasting, are now attracting billions in volume and a new class of insider traders.
According to an independent investigation by analyst DANNY, up to 99% of retail users may be at risk of losing funds due to built-in market advantages favoring insiders.
Insiders Gain Advantage in High-Volume Markets
DANNY noted that as prediction markets like Polymarket grow in size, their dynamics have changed.
In smaller markets, informed analysis helped users make accurate predictions. But as weekly volumes rise into billions, traders closest to real-time data and news sources have begun to dominate.
The core issue, as explained by the analyst, is information asymmetry.
Since contract outcomes often rely on news or official updates, those with early access can act before others. This creates an unfair advantage in what appears to be a public market.
A trader known as “Alpha Raccoon” reportedly earned over $1 million by using Google search trend data.
The probability of accurately predicting such outcomes without early access is low, the analyst noted, raising suspicion that internal data may have played a role.
Volume Signals May Be Artificial or Misleading
Another factor affecting traders is market volume, which is often seen as a signal of probable outcomes.
The analyst explained that high volume creates the illusion that a result is known, which encourages users to follow the trend.
However, a study from Columbia University in 2024 found that up to 60% of volume-based signals were misleading. This was due to strategies designed to manipulate perception rather than reflect actual market confidence.
As a result, users may act based on false cues, placing trades that appear logical but are actually driven by artificial market activity. The analyst stressed the need to question where volume is coming from and how it changes before major events.
Related Reading: Galaxy Digital Eyes Liquidity Role in Prediction Markets
Retail Traders Face Structural Disadvantages in Prediction Markets
Retail users are advised to take caution when entering these markets.
The analyst recommends reviewing contract terms, especially the listed data source that determines the outcome. Understanding the timing and nature of the data can help traders avoid entering late or under false assumptions.
DANNY also urges traders to question volume surges. Not all volume is organic, and some may be part of coordinated efforts to influence market sentiment.
Observing trade timing and wallet movement patterns may offer more reliable insights than raw volume.
Behavioral bias is another concern.
Many traders follow trends without confirming the reasoning behind them. The analyst encourages users to slow down, verify data, and treat every trade as a strategic interaction with others who may know more.
Source: https://www.livebitcoinnews.com/99-will-lose-everything-analyst-exposes-prediction-market-traps/
