Dispatch #9: Prediction Markets Are the Real Winner in This Nail-biter Election

In this patch of your weekly Dispatch:

• Why prediction markets were more useful than pollsters?
• The second biggest Bitcoin difficulty adjustment in history
• Bitcoiner elected to US Senate

The Big Idea

The Real Winner of the US Elections? Prediction Markets

For weeks, pollsters were showing a massive countrywide lead for Candidate Joe Biden, with even some historical GOP strongholds looking in play. Traditional markets for their part were anticipating a blue wave. Democrats, scarred from 2016, weren’t necessarily bought in on the numbers, but more or less, the conventional wisdom heading into election night was blue.

As results from the first states like Florida began to roll in, it quickly started to appear that, once again, pollsters had got it wrong. As the maps turned redder and redder, people took to the only place that had held Trump in contention over the previous few weeks: decentralized prediction markets.

Across tweet after tweet, everyone was watching the odds change on FTX, Polymarket, Augur, Catnip.exchange. PredictIt even went down for a time. After hovering around 35% to win going into the night (much higher than most pollster estimates) Trump raced all the way to a peak of 80%.

As more votes were counted and things came into clearer view, the pattern shifted again.What matters is this though: Americans have seen the follies of pollsters, experts, and conventional wisdom. Could it be that markets – especially truly decentralized prediction markets – have a role to play in helping people navigate a post expert world?

The Latest In…

Bitcoin

Bitcoin has perhaps the truest ally it has ever had in the Senate. A Bitcoin owner since 2013, Cynthia Lummis was previously in the House and won her primary race to join the Senate representing Wyoming on Tuesday. She has spoken extensively about Bitcoin and sound money – even buying into BTC at $320!

And here’s another spicy one… Nearly $1B worth of Bitcoin from a wallet associated with Silk Road is on the move. This wallet – which has been circulating in hacker circles for years with people trying to crack into the bounty inside – was eventually seized by the US Justice Department later this week.

The Latest In…

DeFi

Perhaps somewhat expectedly, decentralized exchange volumes saw a pretty significant fall in October after crazy summer highs. DEX volumes fell 23% to $18.46M. At the same time, those excited about DeFi still have much to be excited about — this volume is still up significantly over all previous months except for September.

The Latest In…

Traditional Markets

Ant Group, the fintech arm of Alibaba, was expected to go public in what was looking to be the largest IPO ever. That was until the Chinese government shelved the listing, putting forth a raft of new regulations targeted at FinTechs. Power play, much?

The Latest In…

Central Bank Digital Currencies

We started the week with a slew of significant news around central banks and digital currencies:

• A representative of the People’s Bank of China shared that more than $300M worth of digital yuan had been transacted in trials
• Australia’s central bank is working with ConsenSys, among others, on a potential wholesale CBDC
• Mastercard and Paypal both discussed CBDCs recently

The Week’s Most Interesting Data Story

The Biggest Bitcoin Difficulty Adjustment Drop Since 2011

One of the most innovative parts of the Bitcoin mining system is difficulty adjustment, where the network automatically adjusts how hard or easy it is to win a block reward based on the processing power available to the network. For example, after March 12th’s black Thursday, difficulty dropped 15.95%. This created an incentive for more miners to come online to capture rewards. This week’s drop of 16.05% was the biggest since 2011 and reflects that many Chinese miners have recently pulled the plug on their machines to switch from hydropower to fossil fuels.

Hot Topics

What the Community Is Discussing

Perhaps it’s not surprising in this moment of massive change that we’re having discussions about a fundamentally new economic landscape

Certainly, it’s not just bitcoin and crypto but also MMT that is going to feature prominently in those discussions

We also expect the discussion of markets vs. models to continue to be an important one

Our Take

@AntoniNexo This Week

• Antoni, who earlier this year predicted a BTC price of $50K by year-end, shared with Decrypt his thoughts about Bitcoin skyrocketing: “The recent flurry of institutional activity—particularly the involvement of a household brand like PayPal—has undisputedly impacted the price of Bitcoin as mainstream interest and trust in this form of investment often increases following such news.”
• Nexo and Binance took their partnership – dating back to 2018 – up a notch! You can now earn an industry-best 8% APY savings interest with Nexo’s Earn on Crypto & Fiat suite.
• He also commented on the Cred scandal in Cryptoslate: “Cred’s loss of funds is a reminder that crypto lenders are responsible for the security and sound reputation that digital banking needs to progress. This situation is regrettable for those affected, but it is also yet another wake-up call for players in the industry who are not taking the necessary precautions to guarantee the safety of their clients’ funds and thereby bring greater scrutiny to our still-nascent industry.”
• And he had some thoughts on this week’s Big Idea, cited by Cryptonews: "While crypto trading is, of course, speculative at best as a means of predicting election results, prediction markets can be used to gauge results ahead of time and potentially draw a more accurate picture than opinion polls. I am inclined to agree with Vitalik [Buterin]’s argument that these markets “incorporate the possibility of heightened election meddling, voter suppression” and other irregularities affecting the outcome, as opposed to “statistical models” that “assume the voting process is fair."

What to Watch for Next Week:

• How will markets respond to a new president?
• Will Bitcoin continue to diverge from alts?
• Can DeFi start to recapture some of the mojo it’s lost since the summer?