The explosive growth of prediction markets, now handling over $20 billion in monthly volume, has triggered a legislative backlash. Platforms like Polymarket and Kalshi dominate the sector, which allows bets on everything from political elections to sports outcomes.
Critics argue these markets blur the line between regulated derivatives and illegal gambling. A surge of suspicious bets, particularly on military actions like the US strike on Iran, has fueled concerns about insider trading. This has led to more than half a dozen bills in Congress, many bipartisan, aiming to ban bets on elections, government actions, sports, and war.
State regulators are also mounting legal challenges. Nevada has halted Kalshi's operations, and Arizona's attorney general has charged the company with 20 criminal counts for running an unlicensed gambling business. The core legal battle is over jurisdiction: states claim it's gambling, while the Commodity Futures Trading Commission (CFTC) Chairman Mike Selig insists event contracts fall under federal derivatives regulation.
The CFTC has begun a formal rulemaking process for the sector. Meanwhile, platforms are tightening their own integrity rules, and some government officials, like California Governor Gavin Newsom, have proactively banned staff from trading on insider information.