Brazil Election Epic Comeback: Prediction Markets Turn into Insider Cash Machines
- Core Viewpoint: Brazil's election saw a historic reversal, with Lula overcoming a first-round deficit to win with 51.79% to 48.21%, breaking the "first-round leader always wins" pattern since 1989 and causing collective heavy losses for prediction market traders who bet on that pattern, as well as Brazilian stocks and on-chain contracts.
- Key Elements:
- Lula reversed Flávio Bolsonaro with a margin of about 4.4 million votes, after Lula's win probability on Polymarket was only 18.5%.
- Two newly registered accounts during the tight race period placed large bets on Lula and collectively profited $1.77 million three days later, with behavioral characteristics suggesting possible insiders.
- Brazil's Ibovespa index opened down 10%, triggering a circuit breaker, and closed down 13.88%, the largest single-day drop since March 2020; the US dollar rose 8.79% against the real.
- On Hyperliquid, the Brazil stock ETF contract EWZ fell 27.22% in 24 hours, with total network liquidations of $14.9167 million, of which long positions accounted for $14.7275 million.
- From after the first round of voting to before the second round, Brazilian stocks rose nearly 7% and the real appreciated nearly 5%, as the market had already priced in expectations of a Flávio victory.
- The "smart money" account with the largest losses, Votei14Voude22, accumulated losses exceeding $430,000, despite previously maintaining a 100% win rate on similar predictions.
On October 26 (Beijing time), Brazil's Superior Electoral Court confirmed Lula's reelection victory. After trailing in the first round, Lula came from behind to defeat former President Jair Bolsonaro's son Flávio Bolsonaro by roughly 4.4 million votes, winning 51.79% to 48.21%.
Since Brazil restored direct presidential elections in 1989, no first-round leader had ever lost in the runoff. Alongside this election that broke the historical pattern came not only Brazil's Ibovespa index, which fell 10% after the open and triggered a circuit breaker, but also a large number of traders who had bet on Lula's defeat in prediction markets.
A Historic Election Reversal
Prediction market Polymarket is a platform where users can bet on the outcome of any event: elections, Federal Reserve interest rate decisions, AI model release dates… events across almost every sector and domain can become tradable products.
Just before the Brazilian election results were announced, the probability of Lula winning was only 18.5%. On this platform, where probability equals odds, that number meant that if Lula won, traders who had predicted correctly could earn more than a 5x return.
On October 23, PolyBeats, an information channel that tracks suspicious trading on the platform, spotted two new accounts—Abkhauae and eventalpha26—that had registered at the height of the race and placed large bets on Lula's victory in that election market.
Three days later, the two accounts had made a combined profit of $1.77 million. Abkhauae changed its name to Abkha after the profit, and eventalpha26 has since withdrawn and exited. Neither had any other trades on the platform.
These behaviors clearly do not fit the profile of a typical "prediction market user" and look more like insiders profiting from an information edge. PolyBeats previously reported in January that it had found an insider account that bet only on war-related topics in markets tied to the US, Israel, and Iran, earning more than $100,000; the following month, multiple media outlets reported that an Israel Air Force reserve major behind the account had been arrested.
The profiles of these two new accounts are strikingly consistent with that major: highly concentrated participation in a single market, name changes to avoid scrutiny, and profits withdrawn.
The same PolyBeats post also named three "smart money" accounts that bet on Flávio winning. Among them, Votei14Voude22 was the account with the largest loss in that election market, exceeding $430,000 in total. Before that, it had maintained a 100% win rate in similar prediction trades in major election markets.
Brazil's Circuit-Breaker Stock Market and Onchain Liquidations
It wasn't just prediction markets that bet on "a first-round lead means certain victory."
According to Reuters, between the first round of voting and the runoff, Brazilian stocks rose nearly 7%, and the real appreciated nearly 5% against the dollar. The market expected that a Flávio victory would drive fiscal tightening and lower financing costs, and it had priced that expectation in ahead of time.
At the open on October 26, that trade reversed sharply. Brazil's Ibovespa index fell 10%, triggering a circuit breaker that halted trading for 30 minutes—the first such halt since March 2020. After trading resumed, the decline widened to as much as 17.34%, and the index closed down 13.88%, its largest single-day drop since March 2020. The dollar rose 8.79% against the real that day.
Onchain markets reacted even faster. According to monitoring by TradingBeats, the Brazilian stock ETF contract EWZ deployed by Trade.xyz on Hyperliquid fell 27.22% in 24 hours, with network-wide liquidations of $14.9167 million, of which $14.7275 million were long positions.
From Polymarket to the B3 exchange and on to Hyperliquid, what got it wrong this time was not just a few individuals' judgments about the direction of politics, but the entire market's overreliance on a historical rule.
Prediction markets make every bet public onchain, and anyone can reconstruct their timelines after the fact. But for those who placed their bets before the outcome was known, all this transparency can do is reconstruct the picture after the fact.
