New Bills Seek to Limit Predictions Markets

A new Federal bill has been tabled to limit prediction markets and prevent people betting on government actions, terrorism, war and assassinations, as well as any even where an individual knows or could control the outcome.

The potential for corruption is obvious when a government official knows of an impending bill or action, and prediction markets taking bets opens up the possibility of insider trading on government actions, which undermines the whole process.

US Senator Chris Murphy and House Rep Greg Casar introduced the Banning Event Trading on Senstive Operations and Federal Functions Act, or BETS OFF for short. It follows on from the DEATH Act, Discouraging Exploitative Assassination, Tragedy and Harm Betting in Event Trading Systems tabled by US Senator Adan Schiff and Representative Mike Lewin.

“These are fundamentally corrupt markets. They are rife with insider trading, and offer incredible perverse incentives, especially inside government for government actors, to push official decision making towards their financial interests,” Murphy said this morning at a press event announcing the BETS OFF Act. He also cited a flurry of activity on Polymarket that preceded the US air strikes on Iran. Many of those accounts were created the day before the US-Iran war broke out.

Casar said the BETS OFF Act is designed to close off “one of the most dangerous new venues for government corruption.”

Predictions Market Under Fire

These guardrails could help the public keep faith in the political process and the corridors of power, but they are also the latest salvo in an assault on the predictions markets. This month, US Senators Richard Blumenthal and Andy Kim proposed the Prediction Markets Security and Integrity Act, which would kill the lucrative sports event contracts that have become the backbone and growth driver of the prediction market platforms.

Sports betting in contract form has taken the prediction market platforms from the fringe of the public consciousness to the mainstream in what feels like  no time at all.

In 2024 alone, the prediction market landscape saw an absolute explosion in liquidity, driven largely by the crypto-based platform Polymarket, which surpassed $2 billion in total trading volume during the US election cycle. At its peak, the platform was seeing hundreds of millions of dollars in monthly active volume, a staggering jump from the modest low-millions reported just a year prior.

This “wisdom of the crowds” model has proven so lucrative that even traditional financial entities are looking to get a piece of the action, with Kalshi and Interactive Brokers racing to list contracts on everything from Fed rate hikes to the winners of the Golden Globes. But it’s sports that have proved the real growth engine, and could yet be the biggest issue.

Legal Pushback at Federal and State Level

The Commodity Futures Trading Commission (CFTC) has intensified its crackdown, arguing that these platforms are essentially operating as unlicensed sportsbooks under the guise of financial derivatives. The legal tension reached a boiling point with the landmark case KalshiEX LLC v. CFTC, where the platform successfully sued to list election-based contracts, much to the regulator’s chagrin.

Arizona, Nevada, Massachusetts and Illinois have all taken legal action against Kalshi and Polymarket, and we’re about to find out if the predictions market is a brilliant way to sidestep gambling regulations, or a loophole that’s about to snap shut.