Summary

  • A specific investor’s large profits from bets tied to the Nebraska and Michigan Senate races in US midterm election prediction markets sparked allegations of trading on nonpublic information.
  • On-chain analysis found the investor had repeatedly placed large bets across Kalshi, Polymarket, DeFi, and crypto derivatives, and experts said that pattern does not necessarily point to insider trading.
  • The controversy has fueled further debate over prediction markets’ insider-trading safeguards and the market-surveillance capabilities of Kalshi and Polymarket, alongside tighter rules and new investigations.

Forecast Trend Report by Period

Allegations that an investor used nonpublic information to reap large profits in prediction markets during the US midterm elections are not backed by sufficient evidence, according to a new analysis.

The Block reported on November 8 that The New York Times recently cited Vanderbilt University research showing that one investor placed large bets on Kalshi and Polymarket just before polling results were released in the Nebraska and Michigan Senate races. The investor wagered on candidates who later showed leads in those polls and was reported to have made substantial profits.

The investor bet about $191,000 on Republican candidate Pete Ricketts to win reelection in Nebraska and made more than $77,000 in profit. In Michigan, the trader put about $623,000 on Democratic candidate Abdul El-Sayed to win and earned more than $180,000. Some of the trades were placed shortly before the polls were released, raising the possibility that nonpublic information was used.

But The Block’s review of blockchain transaction records found that the investor had repeatedly used a similar strategy before, placing large bets and holding positions until election outcomes were decided. By matching Kalshi trading data with fund-flow records, the outlet found signs that the investor may also have placed a large bet about 10 minutes after the Nebraska poll was released. Kalshi’s public trade data alone, however, cannot identify who placed that transaction.

The investor was also active outside prediction markets, trading heavily in decentralized finance and crypto derivatives. In particular, the trader put about $2.99 million into Hyperliquid shortly before the midterm bets and lost about $783,000 over 26 hours. Records also showed prior wagers of more than $1 million on the New York mayoral election and the NFL Super Bowl.

Experts said that trading history does not necessarily support an insider-trading theory. Rajiv Sethi, an economics professor at Barnard College, said the trades appeared to be bets on the final election outcome rather than attempts to profit from short-term price swings tied to poll releases. Vincent Gregoire, a finance professor at HEC Montreal, said the investor may instead have made the large wagers based on an in-house forecasting model or other information.

Still, the possibility of insider trading has not been ruled out. The Block said on-chain records alone make it difficult to determine what information the investor relied on. Polymarket launched its own investigation after becoming aware of the trades, while The New York Times and Siena College said they would also review the allegations.

The controversy has emerged as the US Congress watches how prediction markets guard against insider trading. Kalshi and Polymarket strengthened related rules this year, but scrutiny of bets tied to nonpublic information has kept the debate going over the platforms’ market-surveillance capabilities.

Suehyeon Lee