Prediction Market Bust - (Almost) Daily Laterals #9

Yes, we skipped a day. Knowing when to pull the plug is just as important as knowing when to keep going.

Welcome to Day 9 of (Almost) Daily Laterals - a race against myself to see who crumbles first: my will to write daily shorts like these or time itself. Spoiler:  

At this point it’s clear that doing them daily isn’t sustainable, so I’m going to move forward on a bi-weekly pace - Mondays and Fridays.

The Prediction Paradigm.

Prediction markets are like a stock market, but instead of buying Apple or Tesla, you’re buying the future.

It’s a place where you can literally bet on whether something will happen: who wins the election, when the next iPhone drops, whether Bitcoin hits $100k, or if aliens show up before 2030.

Each “yes” or “no” is like a share. If you think the event will happen, you buy “yes” shares.

If it doesn’t, you lose. If it does, you win.

Originally, economists loved this stuff.

They called it the wisdom of crowds: if enough people put real money on their beliefs, the market price should represent the best collective guess of what’s going to happen. In theory, it’s how democracies should think: rational, data-driven, self-correcting.

In practice, it’s how casinos think.

I’ve been seeing more and more people fall into their trap.

Insider Trading On Steroids

The biggest problem with prediction markets is that they’re often a self-fulfilling prophecy.

I just saw the best example of this.

Coinbase’s CEO Brian Armstrong ended their earnings call by saying the exact words people were betting on him to mention during the call. Here’s the full recording.

It’s important to know that prediction market is glorified betting. It’s fine if you’re doing it for fun and with money you can lose.

But don’t think it’s an actual investment strategy.

Be safe out there.