Prediction Markets Return to Spotlight Amid Iran Conflict Wagers
Prediction markets have surged back into public attention, this time fueled by high-stakes betting on the volatile war between the U.S., Israel, and Iran. These platforms allow individuals to wager on a vast array of outcomes, from sporting events and presidential elections to more jarring subjects like the fate of military conflicts.
Suspicious Trades and Massive Profits Raise Alarm
Just before a fragile ceasefire agreement was announced earlier this week, a cluster of new accounts on the prediction market platform Polymarket executed highly specific, well-timed trades. They bet heavily that an announcement about a halt in fighting would occur on April 7. Some traders quickly pocketed rewards, collectively amassing hundreds of thousands of dollars in profits. Others await payouts as the deadly conflict's resolution remains uncertain.
These transactions have cast a harsh light on the opaque and rapidly expanding world of speculative, round-the-clock internet trading. Concerns about suspicious activity are mounting, exemplified by an anonymous Polymarket trader who gained over $400,000 following the U.S. military's capture of former Venezuelan President Nicolás Maduro in January.
Insider Trading Fears and Regulatory Tensions Escalate
The precise timing and sensitive nature of such trades have intensified fears of potential insider trading, prompting growing calls from lawmakers for official investigations. Major platforms like Polymarket have introduced additional safeguards to combat this issue, but critics argue these measures are insufficient.
Simultaneously, because prediction market wagers are classified differently from traditional gambling, significant tensions over government oversight have erupted. The administration of President Donald Trump has firmly backed company operators, even suing three states to block their attempts to impose stricter regulations.
How Prediction Markets Operate
The scope of topics in prediction markets is immense. While there has been a recent surge in bets on elections and sports, users have also wagered millions on speculative events like a rumored "secret finale" for Netflix's "Stranger Things," whether the U.S. government will confirm extraterrestrial life, and how much billionaire Elon Musk might post on social media in a given month.
In industry terminology, what users buy or sell is called an "event contract," typically framed as a "yes" or "no" wager. The price of a contract fluctuates between $0 and $1, reflecting the collective probability—from 0% to 100%—that traders assign to an event occurring. As perceived odds shift, users can cash out early for incremental profits or attempt to mitigate losses.
Proponents argue that putting money at stake leads to more accurate forecasts and offers an alternative gauge of public opinion compared to traditional polling. Some see value in monitoring these markets for potential news insights, especially around elections.
However, prediction markets can be incorrect, and the identities behind much of the trading remain obscure. While platforms collect personal information for verification, most users trade under anonymous pseudonyms publicly, making it difficult to determine who profits from specific contracts. Critics also warn that the ease and speed of accessing these 24/7 wagers lead to daily financial losses, particularly harming individuals vulnerable to gambling issues.
The Major Players in a Crowded Field
Polymarket stands as one of the world's largest prediction markets, allowing users to fund event contracts via cryptocurrency, debit or credit cards, and bank transfers. Its reach in the U.S. has expanded rapidly in recent years, aligning with shifting federal policies. While the Trump-controlled Commodity Futures Trading Commission (CFTC) has supported such markets, former President Joe Biden took a more aggressive stance on regulation. Following a 2022 settlement with the CFTC, Polymarket was barred from operating in the U.S., but it announced a return late last year after receiving clearance under Trump. American users can now join a waitlist for platform access.
Polymarket's top competitor, Kalshi, has been a federally-regulated exchange since 2020, offering similar event contract trading and currently permitting nationwide bets on elections and sports. Kalshi secured court approval just weeks before the 2024 election to allow wagers on political races and began hosting sports trading last year.
The sector is now crowded with other significant entities. Major League Baseball recently inked a deal with Polymarket, following partnerships in professional hockey and soccer. Sports betting giants DraftKings and FanDuel have launched their own prediction platforms. Trump's social media site, Truth Social, has promised an in-platform prediction market through a partnership with Crypto.com, and Donald Trump Jr. holds advisory roles at both Polymarket and Kalshi. Additionally, The Associated Press agreed last month to sell its U.S. elections data to Kalshi.
Loose Regulation and Mounting Calls for Reform
Prediction markets are regulated by the CFTC because they are positioned as selling event contracts, allowing them to circumvent state-level restrictions or bans applicable to traditional gambling and sports betting.
"It's a huge loophole," said Karl Lockhart, an assistant professor of law at DePaul University who has studied this area. "You just have to comply with one set of regulations, rather than rules from each state around the country."
Sports betting is a focal point of concern. In large states like California and Texas, where sports betting remains illegal, individuals can now wager on games, athlete trades, and more through event contracts. A growing number of states and tribal entities are attempting to halt this practice, but the Trump administration has pushed back, asserting that the CFTC holds sole regulatory authority. Many legal experts anticipate that this issue will eventually reach the U.S. Supreme Court.
Despite overseeing trillions in the U.S. derivatives market, the CFTC is significantly smaller than the Securities and Exchange Commission. Coinciding with the rapid growth of event contracts, the CFTC has experienced substantial workforce cuts and leadership departures, with chairman Michael Selig currently the sole member filling one of five commissioner slots.
In response, bipartisan members of Congress have introduced broad legislation in recent months calling for more robust guardrails. Subsequently, Kalshi—which maintains it has always banned insider trading—moved swiftly to prohibit political candidates from trading on their own campaigns and preemptively block individuals involved in college or professional sports from contracts related to their fields. Polymarket revised its rules to explicitly state that users cannot trade on contracts where they might possess confidential information or could influence an event's outcome.
The CFTC also holds the power to ban event contracts related to war, terrorism, and assassinations, which experts suggest could place certain prediction market trades—including those linked to the Iran war—on unstable legal ground in the U.S. Lawmakers such as Democratic Sen. Adam Schiff are advocating for an outright ban on such trades. Nevertheless, users may find ways to access specific contracts while traveling abroad or by using different VPNs, highlighting the ongoing challenges in regulating this digital frontier.
