(Bloomberg) — Despite widespread skepticism about whether investors should trust the signals sent by cryptocurrency-based predictions market Polymarket, Wall Street is paying close attention to bets on the platform that shows strong odds that Donald Trump wins the United States. presidential election.

While naysayers claim that outsized bets and pro-crypto bias can skew the odds presented on the site, some smart traders and strategists are following Polymarket very closely. Vice President Kamala Harris and former President Trump are basically deadlocked ahead of the Nov. 5 election, according to a recent poll, but betting on Polymarket indicates a 67% probability that Trump will win.

“People are looking for any kind of advantage they have because it’s so close,” said Keith Lerner, co-chief investment officer at Atlanta-based Truist Wealth.

Prominent financial firms that track the platform include JPMorgan Chase & Co., which has used the site’s ratings to build long and short baskets of stocks that are expected to rise or fall depending on the outcome of the election. Rather than imposing its subjective view on which themes will be most affected by the election results, the bank’s trading desk said in a memo that it uses a model that analyzes which moves align on the probabilities of the polymarket. A JPMorgan spokesperson declined to comment.

Digital asset analysts from Bernstein and Standard Chartered also cited Polymarket probabilities in recent research notes.

“Something has to anchor sentiment and therefore opinions, so Polymarket is that proxy or benchmark,” said Frank Monkam, senior portfolio manager at Antimo LLC. “Wall Street is developing an action plan around this problem.”

There are, however, many caveats to the implied probabilities reflected on the platform. On the one hand, a small number of big bettors can theoretically move the market and skew election odds. Last week, Polymarket revealed that a trader who spent more than $45 million betting on Donald Trump’s victory was a French national.

Polymarket is not available in the United States, so bets placed on the site do not reflect the intentions of American voters, as crypto analysts at Kaiko Research pointed out. And although betting on the outcome of the presidential election is currently New York-based Polymarket’s most popular offering, with some $2.7 billion in trading volume on the main market, open interest only amount to about $330 million, according to an analysis by data platform Dune.

“The market is highly illiquid and has little predictive value on the outcome of the election,” Kaiko researchers concluded in an Oct. 24 note, when open interest was less than $250 million. “As the polls are too close to call and on-chain prediction markets are still in their infancy, it is important to consider other markets.”

Bias in the website’s user base is also a concern, since Polymarket is favored by Trump-friendly cryptocurrency investors. Bets on Polymarket produce implied odds that favor Trump by greater degrees than rival platforms PredictIt and Kalshi.

“While we feel like we have real-time data from Polymarket, the credibility of that data should certainly be questioned,” said Art Hogan, chief market strategist at B. Riley Wealth, noting the handful of accounts betting big on Atout. “It calls into question the validity of the data, so I think depending on this real-time data without questioning the validity of this data is also a big mistake.”

Supporters of betting platforms like Polymarket say they offer a truer perspective than polls, given that there is money at stake. At Bernstein, analysts led by Gautam Chhugani wrote in a note from Oct. 29 that they believed market forces were at play on Polymarket rather than an inherently pro-Trump bias. Although Bernstein’s team acknowledges that a small group of large investors can influence markets in a specific direction, they say critics overlook the fact that bettors have real “skin in the game.”

“One group of investors can easily be countered by another group taking a counter bet, and some investors would be harmed in the process,” they wrote.

Regardless, the attention to Polymarket highlights a lack of confidence in traditional polling following some high-profile failures in recent elections. Although 2024 poll numbers show Harris and Trump neck and neck, experts have questioned the accuracy of the data since participation in surveys has declined in recent years.

“It’s more accurate, it’s more real-time,” Bryce Doty, senior portfolio manager at Minneapolis-based Sit Investment Associates, said of Polymarket. How voters in different age groups and genders vote on specific issues can deviate from how a person responds in a poll, thereby skewing what polls reflect, he added.

“The polymarket kind of solves all of that,” Doty said. “If you had to bet on the odds, where would people land? So this reflects the general feeling. »

–With help from Emily Nicolle.

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