Strategy Sold Bitcoin. Polymarket Can't Agree on When

**Steven Ehrlich** (0:00)
Let's talk about one other big news item before we start to wrap up here. And that is the controversy surrounding strategies selling of Bitcoin. For the first time, I don't think it was the first time in its history, but the first time in years and years and years. And we'll sidestep, because I know this is not your role, the impact on the market, which although this was sort of pre-telegraphed during, I think, Seller's Q1 earnings call, the market is obviously reacting poorly to it. But there is a real debate about how a contract on Polymarket tied to the timing of that sale is resolving. And it creates a whole other, it opens up a whole other suite of issues that we haven't even touched on when it comes to the operation of these platforms.
So why don't you walk us through that really quickly?

**Sam Enzer** (0:48)
So I believe the issue is that there was a market on Polymarket where you could place a trade, an expressive view on whether or not, by a certain date...

**Steven Ehrlich** (1:01)
Through the end of May, it was through the end of May.

**Sam Enzer** (1:04)
MicroStrategy would sell. And there was a disclosure that they filed, an SEC filing.
The SEC filing was made in June, but it revealed that prior to June, in May, a sale had taken place. And so there is a dispute right now with big money at stake on whether or not, who is correct? For purposes of this trade, is the controlling date the date of the trade, the date of the sale of the Bitcoin? Or is it when it was made public through the SEC file?

**Steven Ehrlich** (1:43)
Yeah, and like you said, big money. I think tens of millions of dollars have been bet on this market. And yeah, it really comes down again to how these things, how these contracts are written, how they're structured, how they're designed to resolve. And then we didn't even get into the oracles. And they use a relatively smaller oracle provider called UMA to actually vote on the outcome of these events. And I think I've seen some analysis that ultimately nine people control enough voting power on UMA to actually decide, which is not quite as decentralized as I would imagine many people would want. And this is just, I see it as another risk as it relates to prediction markets. I mean, we're excited about the technology. It does, I can certainly understand the value of it in sort of crowdsourcing intelligence for important events.
I mean, there are certain vices, I mean, gambling betting on like trivial items that maybe we need, maybe we don't, but I can certainly see the viability of certain markets. But at the same time, like this is another thing people have to account for when it comes to participating in these platforms and this doesn't even get into necessarily some of the other issues or risks. And again, I know this is not your purview, Sam, but I mean, there's been a lot of reports. The Wall Street Journal had one. There was an academic study really showing how the vast majority of participants lose on these platforms. And just like a casino, the house always wins in a certain way. A lot of the people that make money are the professional market makers, the ones running sophisticated algos, and they prey on retail traders to a large part trying to find long odds that could pay off and just fundamentally misunderstanding risk, which frankly, I think we all do from a certain time to time.
But there's a lot of different things for traders to be careful about when it comes to participating in these markets. I'd love for you, because we have to start wrapping up, to the extent you are able to share, and from your vantage point as a former prosecutor and just someone who intimately understands the way these markets operate, in a not official financial advice point of view, what are some of the things that you, for instance, will look for, try to understand, before you might want to put a bet on one of these markets?

**Sam Enzer** (4:08)
Sure. I think what I would look at, first, as you point out, it's very important to diligence how is the bet, who determines how the bet is won, what are the rules for that? You need to understand, that's kind of part of understanding counterparty risk, right, is understanding the mechanics of it, so that if there, you don't want to, you want to make sure you're playing on a level playing field, right, part of understanding the level playing field. The second thing is, why am I placing this bet? Am I placing this bet because I believe I have better information or a better judgment? Is this for fun? What am I doing here? If this is a serious bet, then I need to understand whether I really have some kind of asymmetric advantage that is legal. In other words, I don't have an asymmetric advantage because I have inside information, but I have an asymmetric advantage because I am smarter analyzing the signal than the rest of the market. Or maybe it's a hedge. But frankly, I personally find that the greatest use of prediction markets is the information.