Political fight in the US over the future of prediction markets such as Polymarket and Kalshi has escalated into a full-scale war, and the battle lines are not neatly drawn along party lines. Instead, conservative Mormons have aligned themselves with Las Vegas heavyweights and MAGA royalty are siding with liberal Democratic lobbyists. One side claims that the platforms are breaking the law by operating as virtual casinos. The second insists that they only provide people with access to legitimate financial markets that are already subject to appropriate government supervision. Neither camp is retreating.
Currently, the powerful forecasting company Kalshi operates in all 50 states. Its main rival, Polymarket, was banned from entering the United States in 2022 for operating an unregistered derivatives market, but returned last year on a circumscribed basis. These companies offer clients “event contracts” that allow them to trade stocks tied to the performance of almost everything, from who wins this year’s Best Actor Oscar to the price of Bitcoin at the end of the day. The most popular category much is sports. Kalshi reported a daily record of more than $800 million in transactions on Super Bowl Sunday related to the game alone and more than $1.3 billion in transactions in contracts related to the event overall.
Once a niche financial experiment, prediction markets have quickly become embedded in mainstream culture, and this transformation has brought huge amounts of money into the game. The leading players in the industry are already billion-dollar companies in their own right. Every day, casual speculators and die-hard regulars log in to predict which way the world will go, choosing between a dizzying array of possibilities for winning and losing.
Supporters say these platforms democratize access to commodity trading and are useful tools for forecasting the future. And ultimately, adults should be able to do whatever they want with their money. The fundamental difference between a prediction market and a casino is that “there is no home on Kalshi, users trade among themselves. Users benefit: they receive fair prices, the ability to withdraw at any time at fair market value, and winners are never blocked or restricted,” says Kalshi spokesman Jack Such.
But critics say prediction markets, at least in their current form, are exploitative. “It’s illegal gambling,” says former Fresh Jersey Attorney General Matt Platkin, who recently opened a boutique law firm focusing on consumer protection cases. The industry is “unregulated, untaxed and unsupervised,” he adds.
Prediction markets are overseen at the federal level by the Commodity Futures Trading Commission (CFTC), the agency responsible for financial instruments called derivatives. It has been grappling with the industry since the overdue 1980s, when the University of Iowa launched the Iowa Electronic Market, an academic project that allowed participants to buy contracts based on election results and public market performance.
Attorneys general and gaming regulators in many states say sports contracts in prediction markets should comply with state gambling laws. Part of the reason for this reaction is that prediction markets provide an attractive alternative to the regulated gambling industries in places like Nevada, which represent a vast part of the local economy. “The states have an interest,” says Alex Grishman, head of the digital assets practice at the law firm Haynes Boone. “They want to get as much tax revenue as possible.”
Kalshi faces 19 separate lawsuits across the country and that’s it narrowly escaped recent short-lived closure in Massachusetts. Federal lawmakers also began to wonder; earlier this month, 23 Democratic senators expressed support for efforts to get prediction markets to comply with state gambling laws. Platkin believes the wave of challenges is far from over: “We’re just at the beginning of these types of lawsuits.”