The US presidential election is heating up, and crypto derivatives trading site FTX is getting in on the fun. Following their listing of a TRUMP futures contract that’ll pay out $1 if Trump wins in 2020 and $0 if he loses, the site has listed four of the potential Democratic nominees: Bernie Sanders (BERNIE), Pete Buttigieg (PETE), Joe Biden (BIDEN), Elizabeth Warren (WARREN), and Michael Bloomberg (BLOOMBERG).
As of this writing, the Trump contract is priced at roughly $0.63, which means that 63% of those who’ve purchased it expect him to win. The Democratic candidates are all priced lower (that’s to be expected, since no one has yet sealed the nomination). Bernie Sanders leads the field with a price of nearly $0.20, Bloomberg is sitting in second with a price of $0.10, Joe Biden and Pete Buttigeig are both priced at roughly $0.04, and Elizabeth Warren is ranked last at roughly $0.02.
This ranking is notably different from national polling averages, which show Biden, not Bloomberg, directly training Sanders, and Elizabeth Warren polling slightly ahead of Pete Buttigieg.
In the immediate wake of Wednesday night’s Democratic debate, only one of the candidates seemed to be significantly affected: Michael Bloomberg. His contract, which had been trading at nearly $0.14, plummeted thanks to a wake of mid-debate sales, according to FTX’s record of trades. Trade records also show a spate of BERNIE purchases, although the price of that contract hasn’t risen as sharply as Bloomberg’s has dropped (as of this writing).
Looking at the bigger trading picture, traders have been most active on the Trump and Bernie contracts, but none of the contracts are seeing very significant trading volume. TRUMP, for example, has seen just ten trades in the past 24 hours (as of this writing). Less popular candidates like Biden are seeing even less activity — the BIDEN contract doesn’t have a single trade in the past 24 hours. Overall, the presidential contracts represent just a tiny, tiny fraction of FTX’s overall volume (daily volume is about $786 million as of this writing).
What Do These Contracts Mean?
Science has shown that prediction markets can be surprisingly accurate, so it’s not impossible that a market like this could have some predictive power. However, the low trading volume here means that very few traders are participating. For predictive markets to forecast accurately, you need more people and you need good people. Some people, it turns out, are much better at predicting the future than others.
Moreover, FTX’s contracts are actually closed to US-based investors, who one would assume are best-placed to understand the differences between these candidates, and to gauge the national mood. The prices of these contracts, in other words, are set based on what a very small number of non-Americans think will happen in the US.
FTX seems to be looking toward China specifically. "In our observation FTX has heavily prioritized the very strategic China market,” says Matthew Graham, CEO of Beijing-based blockchain investment firm Sino Global Capital. “Initially they likely had more traction with their FTT Token. However, FTX’s highly professional offering has clear product differentiation and fills a gap especially at the high end of the market. The Binance investment and partnership also was a very savvy tie-up for both companies, and caused a lot of buzz in China."
This is not to say that crypto markets can never have predictive power. Augur, an Ethereum-based decentralized predictive market, has an impressive track record with recent politics — its users correctly predicted the 2018 midterm results, Brett Kavanaugh’s confirmation, and Trump’s impeachment. However, Augur is currently unavailable in the run-up to a V2 launch, so we’ll have to wait and see how its larger base of crypto bettors think the presidential race is going to play out.