Polymarket prediction: 9% chance of China attacking Taiwan, investors betting on higher profits than bonds

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Polymarket Prediction: Will China Invade Taiwan

The decentralized prediction platform Polymarket has a market predicting whether China will invade Taiwan in 2024.

The rules state:

If China begins a military attack and gains control over any area of Taiwan by 11:59 PM ET on December 31, 2024, the market will resolve to "Yes"; otherwise, it will resolve to "No." The market resolution will come from official confirmations by China, Taiwan, or any permanent member of the United Nations Security Council, but may also use credible reports for consensus.

This prediction event started trading in early January of this year and will continue until the end of the year, with currently 91% believing that Taiwan will not be invaded.

Profits "Stable" Higher Than Bonds?

If China does not invade Taiwan in 2024, those who bet against it will receive close to a 9% return. Although this may not be substantial in the highly volatile cryptocurrency market, CoinDesk compares this to slightly above 1.26% for a two-year Taiwan government bond, considering this trade to be superior to investing in bonds.

It is noted that government bonds have historically been seen as bets on a country's future prospects, with risks that investors must bear including political instability, economic turmoil, and the possibility of war, hence leading to higher bond yields in developing countries.

Comparatively, based on bond market price trends, it is unlikely that China will invade Taiwan this year. Polymarket users seem to overestimate this event with 9% believing in an invasion, making this risk-free rate higher than Taiwan bonds.

High Probability of Israeli Counterattack

Last week, Iran launched a drone attack on Israel, causing Bitcoin prices to plummet to $60K, and potential positives like the Hong Kong Bitcoin spot ETF did not push Bitcoin back above $70K.

CoinDesk also mentioned that Polymarket prediction markets seem calmer compared to Twitter's panic discourse, with a prediction indicating a mere 14% probability of an Israeli counterattack against Iran.

However, upon checking, it was found that this probability has rapidly risen to 26%.

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Note: Predictions involving political events on Polymarket may violate election laws, as reported previously:

Polymarket Election Betting Controversy: How Was I Caught?