Prediction markets were once viewed as a curiosity—an experimental way to forecast elections, economic trends, or pop culture events. What could be the harm of risking a small sum on whether Taylor Swift will drop a new album before her wedding?
That perception is changing quickly. As trading volumes have surged and markets have expanded into geopolitics and military events, regulators and lawmakers are increasingly confronting a familiar concern: insider trading.
THE RISE OF PREDICTION MARKETS
The past two years have witnessed dramatic growth in prediction markets—platforms that allow users to trade contracts whose payoffs depend on the occurrence or nonoccurrence of specific events, such as economic indicators and sporting events.
Two of the most prominent platforms are: Kalshi and Polymarket. Current public estimates suggest cumulative trading volume across major platforms exceeded $10–$15 billion in 2025, up sharply from only a few billion dollars in 2022.
Supporters argue that prediction markets harness the “wisdom of crowds” to produce more accurate forecasts than polls or expert opinion. Skeptics counter that they are merely unlicensed gambling[1] and further, that the incentives embedded in these markets may encourage manipulation, speculation, and opportunistic behavior.
THE IRAN AND VENEZUELA TRADES THAT RAISED ALARMS
Several high-profile trades in 2026 have raised questions about the extent of insider trading on prediction markets.
Venezuela
In early January 2026, a trader wagered roughly $32,000 that Venezuelan President Nicolás Maduro would be removed from power shortly before a U.S. operation captured him. When the event occurred, the trader reportedly realized profits of more than $400,000, prompting questions about whether the position reflected privileged information rather than market insight.
Iran
Mere hours before U.S. military strikes on Iran, more than 150 accounts made investments of over $1,000 in event contracts based on the timing of the strikes, with six traders together making more than $1.2 million. In addition, The New York Times has reported that one user on Polymarket made $553,000 on bets placed immediately before Iran’s supreme leader, Ayatollah Ali Khamenei, was killed by U.S.-Israeli strikes. The Times also noted that another Polymarket user purportedly made $2.14 million from bets placed on different aspects of the military operation.[2]
These episodes share a common feature: large, concentrated trades placed immediately before market-moving events that were not yet public.
PROMPT REGULATORY RESPONSES
The reaction from policymakers has been unusually swift.
Members of Congress from both parties have introduced legislation aimed directly at prediction-market integrity, including proposals that would:
- Ban government officials from trading on prediction markets using nonpublic information;
- Require disclosure of certain positions and profits; and
- Expand enforcement authority over such trading.
At the same time, prediction-market operators have begun implementing new guardrails, including restrictions on participants who may possess insider information or the ability to influence outcomes. For example, Polymarket updated its rules to clarify that users cannot act on stolen, confidential information, wager using illegal tips, or bet if they are in a position to influence the outcome of an event.
Newly-installed CFTC Director of Enforcement, David Miller, addressed the issue in his first public remarks since being appointed, stating, “A myth has spread that insider trading is permissible, or even encouraged, in the prediction markets. Prominent individuals in finance, media, and particularly on social media, have contended that insider trading law does not apply to these markets.” Miller said, “These comments all suggest that insider trading is an important and acceptable part of the prediction market ecosystem. Not so.”
In addition, several news outlets have reported that the White House issued a warning to staff in March against using insider information on the Iran war to bet on financial markets.[3]
THE BOTTOM LINE
What comes next is anyone’s guess. Certain senators are highly critical of relying on the industry to police itself, and there appears to be strong bipartisan support for banning government officials from trading on prediction markets using nonpublic information. But others worry that the current administration may be influenced by the prediction-market industry, as Donald Trump Jr. has a financial interest in Polymarket and also has been hired as a strategic advisor for Kalshi.
Ultimately, while prediction markets promise to harness the “wisdom of crowds,” they cannot function if insiders are allowed to profit on material insider information. As Charlie Warzel wrote in The Atlantic: “Welcome to the democratization of insider trading. . . . [I]n reality, prediction markets produce the opposite of accurate, unbiased information. They encourage anyone with an informational edge to use their knowledge for personal financial gain.”
[1] In fact, both Kalshi and Polymarket are facing a host of actions across the country brought by certain state regulators and private plaintiffs alleging that the so-called “event contracts” constitute unlicensed sports betting or gambling under state law.
[2] These are not the only examples of suspicious transactions. For example, the CFTC’s Enforcement Division issued an advisory concerning two recent Kalshi actions: one involving a political candidate who traded event contracts regarding his own candidacy, and another involving an employee of a company affiliated with a YouTube channel who traded contracts related to the channel’s videos. In both cases, Kalshi imposed financial penalties and suspended the traders.
[3] And this is not a U.S.-only issue. Last month, Israeli authorities charged two people on suspicion of using classified information to bet on military operations on Polymarket.