Spotify recently removed over 500,000 streams from a pop song called ‘Earrings. ’ This comes after Spotify discovered that the song had a 70% surge in US streams over the weekend, which coincides with suspicious betting activity on a prediction market called Kalshi. Prediction markets are digital platforms that allow people to bet on the outcome of future events, with the prices of bets reflecting the probability of the future event happening.

What Spotify discovered with ‘Earrings’ is that bots had been programmed to play the song on repeat in order to manipulate its ranking on Spotify’s daily US charts - when ‘Earrings’ reached the top of these charts, Kalshi paid out to traders that had betted on this outcome despite the odds of this happening earlier being pegged at only 2.5%.

Analysis

This incident sits within a broader pattern of prediction market manipulation, as the emergence of these prediction markets have made insider trading a lot more viable. For example, US prosecutors charged a soldier this past April for making prediction market bets on a military raid occurring, when they themselves had helped plan this very military raid.

Prediction markets like Kalshi and Polymarket operate in a regulatory grey zone as regulations were primarily designed with financial markets in mind, not Spotify charts or the infinite number of events that can be ‘predicted’ on a platform like Kalshi.

What does this mean for the sector?

• Regulators around the world will have to reckon with whether prediction market manipulation of this sort falls into existing market abuse frameworks or require new legislation

• Streaming platforms will have to invest more into real-time fraud detection, to be able to prevent manipulation of this sort before the involved traders are paid out

• Where prediction markets involve innocent parties like Malcom Todd - who recorded ‘Earrings’ they risk suffering reputational and commercial harm despite a lack of involvement in the betting