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Short Selling Prediction Market

SpecialistXBT

2025-12-08 03:27

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Mean Reversion of the Super Bull Market Cycle

I am not a gambler, nor do I understand the thrill of watching the candlestick chart with a racing heartbeat. But when CNN and CNBC each announced the integration of digital odds from prediction markets into their news broadcasts, I felt like we were being toyed with by a new kind of "truth."

The Crypto bro preaches: traditional polls will be replaced, experts are the high priests of the old age, only odds backed by real money can reflect the wisdom of the crowd and the reality of truth. However, the trading logic cultivated by prediction markets is in line with Keynes's "beauty contest," where you no longer care about who is the most beautiful, you only care about "who others think is the most beautiful." The concept of beauty itself has been "dissolved," just like Duchamp's urinal in an art museum. The prediction market will continue to speed up, stall, until more and more sober-minded individuals start to "short" this frenzy, "short" the narrative of the prediction market itself.

Exchanges and casinos are two distinctly different worlds. Farmers worry about a drop in food prices, downstream food processing plants worry about price increases, so they come to the derivatives market to find those willing to take on risk. It is only because of the different demands that trading can flow.

However, in the context of prediction markets, this natural counterparty is non-existent. This results in the market being left with only market makers, smart money with insider information, and gamblers destined to be harvested: if a counterparty with an information advantage is willing to trade with you at that price, then this transaction is likely to be a loss for you. Once the "dumb money" is depleted, liquidity will quickly dry up. As insider traders are allowed to exist in large numbers, if the prediction market does not have a continuous supply of gamblers, it will become a Ponzi scheme that cannot sustain itself.

In a natural system, the reading of a thermometer will not change the temperature; no matter how much we bet, Halley's Comet will still return on time. But in a social system, probability itself has the power to "distort the stance of reality," and the observer's greed can change the reality being observed.

Ethereum can ensure the "economic security" of the blockchain network through a slashing mechanism, but the prediction market cannot guarantee "social security." On the contrary, it even rewards destruction.

If a billionaire bets heavily on a certain extreme event, he is actually providing financial support for that outcome and using the market's probability signal to sow panic or consensus. Massive funds can create a huge potential energy that, in turn, hijacks media coverage and influences public confidence by forcibly collapsing an uncertain result into what the bettors want.

Kaito, who wanted to be a hub of information distribution, ultimately became a broadcasting station that only outputs noise. The prediction markets boast of being a telescope to foresee the future but cannot stop themselves from becoming billboards that manufacture the future.

Many people believe that with regulatory easing and a surge of capital, the prediction market is bound to be the next big thing. But things always go to extremes.

People are gradually realizing that we are at the peak of a "gambling culture" cycle.

A full-fledged financialization will only bring emptiness. People will eventually grow tired of this high-frequency dopamine stimulation and return to the experiences of life. We are starting to close our screens, go hiking, touch real soil, read physical books, and build deep relationships outside the screen.