Prediction market platforms Polymarket and Kalshi spend a lot of time and money convincing regulators not to game.
Outside the United States, authorities consider prediction markets to be synonymous with gambling. Taiwan, France and now Singapore have taken steps to prevent users from accessing Polymarket at the ISP level, calling the prediction market platform an unlicensed gambling operation of some kind.
Prediction markets are investment tools where traders take a position on the outcome of a question.
Parties and counterparties have different opinions on how to price the competing sides of the issue, and the market is in the business of determining prices. If the event occurs, each share will be worth $1, or $0 if the event does not materialize.
This is not a game of chance. Prediction markets are not considered gambling (in the US) because they are designed as tools to forecast outcomes based on probabilities, rather than games of luck. The house does not set the odds or win. These are market participants.
In the United States, the Commodity Futures Trading Commission sees its role as regulating prediction markets because it views the markets as a collection of event contracts, similar to the weather derivatives (which are not a new invention) used by farmers to protect themselves against crop failure by purchasing contracts. which are paid in case of bad weather. Climate change has made this a lucrative field.
Both Polymarket and Kalshi have had their own fights with the CFTC. Polymarket settled, Kalshi won. As a result, Kalshi is now allowed to offer election-based event contracts; Polymarket must prevent US users from accessing its platform. Kalshi now also has Donald Trump Jnr. as an advisor, helping in your case before regulators.
Election-based event contracts were big business during the 2024 election. If we look at how the market responded to Donald Trump’s eventual victory, we can view them as financial instruments to prepare for a post-election market.
Considering bitcoin’s “Trump Bump,” a significant price correction could be expected if rival Kamala Harris were to win, so cryptocurrency traders would want to hedge their holdings with prediction market positions.
Polymarket’s detractors are wrongly betting on the platform’s demise after the elections. The data showed that by all accounts the platform was doing well after the election: $1.6 billion in monthly volume.
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But much of this volume comes from sports-themed prediction market contracts. Data from Polymarket Analytics shows that there is currently over $1.1 billion in betting volume on the outcome of the NFL Super Bowl; 740 million dollars for the Champions League result; and $700 million for the winner of the NBA Finals.
There is no macro-level importance to the outcome of a sporting event. Unlike an election, a war, or a Fortune 500 company’s decision to acquire a rival (or add bitcoin to its balance sheet), the outcome of the NFL Super Bowl has no broader financial or social consequences.
In other words, this is a lot like online sports betting, which required a herculean effort to become legal and has its own set of strict licensing requirements. Online gaming operators spent a considerable sum establishing (and legalizing) this market, while land-based casinos like MGM were playing catch-up.
In jurisdictions such as Singapore, which have licensed online sportsbooks offering sports betting, the case is clearly in place for a ban. In the United States, state gambling regulators could be next to take a look, perhaps prompted by online sports gambling giants legalizing a once-banned industry.
That’s not to say there isn’t room for sports-themed prediction market contracts.
NFL streaming rights are worth more than $100 billion and streamers like Amazon and Netflix are trying to get into sports, making prediction market contracts on NFL ratings, for example, be a useful tool for shareholders of media companies to determine whether an investment in broadcast rights was worth it.
The possibilities are endless.
Or maybe Polymarket should just move to Canada, since Ontario allows both political and sports betting. Sometimes the smartest bet is a change of scenery, and there is no prediction market for that.
