A study found that Polymarket's 5-minute bitcoin prediction market could encourage spot price manipulation just before settlement, potentially working against ordinary traders.

Cointelegraph reported on Tuesday that researchers at Stanford University and Singapore Management University analysed the contracts and said the short settlement structure provides arbitrage opportunities for sophisticated participants.

The contract requires traders to predict whether bitcoin will end above or below a specific reference line five minutes later. It settles via a Chainlink price feed based on bitcoin's price at the end of each trading interval. The researchers said the structure gives some participants an incentive to influence spot market prices just before settlement.

The researchers said they compared trading before and after Polymarket introduced the contract in July 2024 and found a surge in bitcoin spot-market order flow just before settlement, followed by rapid price reversals. They said the pattern was consistent with settlement-price manipulation.

During the sample period, about $1.28 million was estimated to have shifted from general traders to participants in manipulation. When the contract duration was extended from five minutes to 15 minutes, the effect largely disappeared. The researchers said this does not mean prediction markets are inherently vulnerable to manipulation, but that settlement design and approaches such as a time-weighted average price could reduce risk.

The study also has implications for financial markets outside cryptocurrencies. The paper said traditional exchanges such as Nasdaq and Cboe have also proposed event contracts linked to asset prices. It said contract design could become a more important issue as prediction markets expand into regulated financial markets.

The market is growing rapidly. According to DefiLlama data, prediction-market trading volume hit a record high in June 2026. With trading rising on the back of the expanded 2026 International Federation of Association Football (FIFA) World Cup, Kalshi handled about $9.4 billion in monthly volume, while Polymarket International processed about $4.3 billion. The two platforms' cumulative volume in World Cup winner markets also topped $5.4 billion as of the time of writing.

Legal disputes are also growing as trading expands. Several U.S. states raised issues this year with Kalshi and Polymarket, among others. The U.S. Commodity Futures Trading Commission (CFTC) argues that federally regulated event contracts fall under its "exclusive jurisdiction" rather than state gambling laws.

The study shifted the focus of the prediction-market controversy from the markets themselves to settlement structure. By quantifying what incentives short settlement intervals create, it could become a reference point for future discussions on prediction-market product design and regulation.