Prediction markets draw traders with arbitrage opportunities and high risk

A report from 10X Research notes that these platforms create extreme information asymmetry between retail users and professional traders, resulting in notable arbitrage opportunities.

While most trading still centers on sports events, traders are increasingly turning to prediction markets tied to bitcoin and other crypto assets. Potential returns on these markets can far exceed the gains from simply holding tokens.

In one example, Polymarket traders could earn a 100x payout by buying cheap “yes” contracts, whereas an equivalent move in the spot market would yield only modest upside.

But concerns over insider trading within the segment are growing. Polymarket user AlphaRaccoon earned more than $1 million in a single day, winning 22 out of 23 bets, including wagers on Google search trend movements. Market participants say this is not the first time he has posted an unusually accurate streak. A previous run — correctly predicting the early release of Gemini 3.0 — also drew scrutiny.

Another major player, known as ilovecircle, made about $2.2 million in two months with a 74% success rate. Results like these all but guarantee the use of machine learning models capable of cross-niche arbitrage and automated trading.

Activity from such accounts is heightening tension among retail traders, who worry they are competing in markets where the edge lies either with professional teams or insiders armed with private information and advanced AI tools.

A similar dynamic has long existed on centralized crypto exchanges, where market-making desks often sat on the other side of retail trades. On prediction markets, that role is now occupied by sophisticated traders and bots.

Despite rising risks, interest in prediction markets keeps growing. Traders are drawn by the high profit potential, low barrier to entry, and the appeal of betting on events that extend beyond simple price movements of individual assets.