CALLS FOR REGULATION
Some critics argue that the US Congress should intervene, particularly when markets involve elections or matters of war.
“I think Congress needs to step in and say: ‘We don’t want people betting on elections.’ By the same token, we don’t want people betting on things that are similar to war, assassination, things of that nature,” said Ben Schiffrin, director of securities policy at Washington-based non-profit Better Markets.
US Democratic lawmaker Mike Levin told Reuters that he and Senator Chris Murphy, a fellow Democrat, are working on a bill to rein in prediction markets following the bets on US-Israel strikes in Iran.
Regulating the sector, however, presents challenges.
Polymarket, one of the biggest prediction market sites, operates some of its activities offshore, making oversight by US authorities more difficult.
The use of cryptocurrency on many platforms also allows users to remain anonymous.
Prediction markets have also received support from the Trump administration, which has taken a more favourable view of the industry after tighter scrutiny under former President Joe Biden’s administration.
The president’s son Donald Trump Jr serves as an advisor to both Polymarket and Kalshi.
Advocates of prediction markets, including Trump administration official Michael Selig who oversees them, argue that they can help businesses and investors better anticipate future risks.
“They provide useful functions for society by allowing everyday Americans to hedge commercial risk like increases in temperature and energy price spikes,” said Selig, who is chairman of the US Commodity Futures Trading Commission.
“They also serve as an important check on our news media and our information stream,” he added in a video posted to the X social media platform.
Even so, critics warn that allowing bets on conflicts and crises could create dangerous incentives, particularly if individuals with access to sensitive information can profit from it.
They argue that when national security events become tradable markets, the risks extend beyond financial speculation.