Prediction markets backlash builds possible stormcloud for 2027

News Analysis Share Share this article Copy link X icon X (Twitter) LinkedIn Facebook Email Prediction markets backlash builds possible stormcloud for 2027 Odds favor a Democratic rise in Congress next year, when lawmakers who've begun going after firms such as Kalshi and Polymarket may have greater sway. By Jesse Hamilton | Edited by Nikhilesh De Mar 31, 2026, 12:00 p.m. Make preferred on CEO Shayne Coplan's Polymarket is among those wading through a field of new U.S. legislation aimed at the prediction markets. (Jesse Hamilton/CoinDesk) What to know : Prediction markets are having a moment in the U.S., though unfortunately for Polymarket and Kalshi, the moment has drawn more than half a dozen pieces of critical congressional legislation. The industry is getting getting tied to accusations of insider trading and sports-betting violations from various critics even as its close new friend atop the Commodity Futures Trading Commission tries to lend it a hand it with new policies. A shift to raise the authority of Democrats in Congress could mean the path toward U.S. policy gets rockier soon. The rocketship rise of prediction markets has been answered by a barrage of U.S. legislation meant to sharply limit bad behavior in the new sector. While those bills probably aren't going to hit their targets right away, the shifting political tide could lend energy to the sentiments behind them. Polymarket and Kalshi lead the pack of event-contract platforms, but the field has swelled further with entries from firms such as Coinbase and Crypto.com , institutional partners and online gambling operations. The sector has exploded from $1.2 billion in monthly activity at the start of 2025 to more than $20 billion a year later, according to a TRM Labs analysis , with political bets leading the way, followed by sports contracts. Users can bet on such diverse developments as the words President Donald Trump may use in a speech, the release date of a music album, how rich a particular billionaire will get by the end of the month and which baseball team will win the American League pennant. The popular sports bets are, in the eyes of many state officials and a growing number of federal lawmakers, crossing the line from regulated derivatives into state-policed gambling. And for other critics, some of the government-action bets are not only problematically focused on such areas as war and assassination, but they're also potentially being gamed to benefit insiders who know the plans before they happen. In recent weeks, legal challenges from state officials have ramped up and lawmakers have taken note of high-profile incidents in which phantom bettors seemed to know the timing of military assaults before the first shots were fired. Those and other concerns became the fuel for more than half a dozen bills in Congress, many of them backed by Democrats but others introduced by members of both parties. STOP Corrupt Bets Act: A cross-chamber bill from two Democrats — Senator Jeff Merkley of Oregon and Representative Jamie Raskin from Maryland — would ban a wide swath of event contracts. The legislation introduced last week would entirely halt bets on elections, most government actions, sports and military actions. Public Integrity in Financial Prediction Markets Act: A possibly more potent Senate bill because of its bipartisan backing , this one would prohibit election officials and employees of the government from betting on anything they have inside knowledge of. The bill — authored by four senators, including Republicans John Curtis of Utah and Todd Young of Indiana — was a response to suspicious bets on the war in Iran, and it would extend its ban to the president, vice president, cabinet members and congressional lawmakers. A similar one from another two Senate Democrats is the End Prediction Market Corruption Act and from a bipartisan pair of House members is the Preventing Real-time Exploitation and Deceptive Insider Congressional Trading Act (PREDICT Act). Banning Event Trading on Sensitive Operations and Federal Functions (BETS OFF) Act: On the same theme, this piece of legislation responds to wagers on Iran and Venezuela military actions that may have demonstrated prior knowledge. Backed by Democrats in the Senate and House , it also bans trades from those who know the outcome of matters including government action, terrorism, war, assassination and other events the bettors have prior awareness of. The Prediction Markets Are Gambling Act : This bill stops prediction markets from activity that resembles sports betting. Introduced by two senators who also backed the Public Integrity Act, Senators Adam Schiff, a California Democrat, and John Curtis, the Utah Republican, the legislation supports the efforts from state gambling regulators to keep sports event contracts within the states' jurisdiction. Prediction Markets Security and Integrity Act: The legislation from Democratic Senators Richard Blumenthal of Connecticut and Andy Kim of New Jersey focuses on preventing insider trading and market manipulation, but it also demands age verification for those betting and bans trades on war, death and military action. The waning popularity of the Republican Party during President Donald Trump's second term has left Democrats in a strong position to regain the majority in the U.S. House of Representatives, put at an 85% likelihood by Polymarket's betting. The Democrats also have an almost even chance to get the Senate, too, according to Kalshi wagers . So these Democrat-heavy efforts may get more juice after the elections. Still, even if a bill somehow passed both the Senate and House next year, it would land on the desk of Trump. The president's son, Don Jr., serves in advisory roles for both Kalshi and Polymarket, and a venture-capital firm he's involved with invested in Polymarket . The Trumps' stake in World Liberty Financial Inc. means they have a personal tie to prediction platform Myriad, which said it's using WLF's stablecoin , USD1, as a settlement asset. Also, President Trump has reportedly praised prediction markets for being superior on election forecasting than polls. And the sector shares DNA with the crypto world, putting contracts on blockchains and doing business in tokens, so the innovations are often spoken of together by advocates and policymakers. President Trump has made elevating the crypto industry a leading aim of his administration. War with the states So, the industry may get the White House on its side to resist congressional action. But the states have no such impediment and are taking the prediction markets to court. On state-regulated sportsbook BetMGM, a person can bet $100 that the University of Michigan's basketball team will advance in its next March Madness game, and if Michigan wins, the person would be compensated with an additional $80-something based on the relative risk of that wager. On Kalshi, a user can go through that same process and win a nearly identical amount. Some state regulators are arguing in court that a wager and an event contract on the same game should both be considered gambling. CEO Tarek Mansour's Kalshi is the target of many state lawsuits combating its right to conduct sports contracts outside of state gambling regulations. (Jesse Hamilton/CoinDesk) "Every day brings a new lawsuit," said Liz Davis, a former chief trial attorney in the Commodity Futures Trading Commission's enforcement division who is now a partner at Davis Wright Tremaine. She and other lawyers are assuming the ultimate test of jurisdiction will likely land with the Supreme Court. "It may take two years, but it almost certainly seems to be going down that path and will go to the Supreme Court," said Jake Preiserowicz, a former CFTC special counsel now at McDermott, Will & Schulte. Until then, it's a "minefield." In Nevada, a court has halted Kalshi's operations over that argument. Other states are pursuing similar complaints, such as Washington state on Friday . And Arizona's attorney general elevated the fight by charging Kalshi with 20 criminal counts for running what her accusations labeled an unlicensed gambling business that offered illegal election wagering. The former White House chief of staff in Trump's first administration, Mick Mulvaney, has taken the states' side of that argument , establishing the new Gambling Is Not Investing Coalition to counter the prediction markets sectors' insistence that their businesses deserve to be regulated under federal derivatives rules. "If it looks like gambling and functions like gambling, it should follow gambling rules," its website states, arguing that the states and tribal governments should be the proper watchdogs. After Washington state's accusations emerged, Kalshi's head of communication, Elisabeth Diana, told CoinDesk that her company "is a regulated, nationwide exchange for real-world events, and it is subject to exclusive federal jurisdiction." "It's very different from what state-regulated sportsbooks and casinos offer their customers," she said. "We are confident in our legal arguments." Friend at the CFTC Current Commodity Futures Trading Commission Chairman Mike Selig, whose agency regulates the derivatives space, has pursued a very public campaign to agree with Kalshi that the CFTC has the authority and not the states. Regulating the prediction markets has been among his top policy priorities, and he filed a court brief in one case to stake his claim that the states are improperly infringing on the CFTC's reach into event contracts. "This power grab ignores the law and decades of precedent," he said. His agency has been working on new regulations for prediction markets, and it secured an unprecedented memorandum of understanding with Major League Baseball for information sharing. Selig, whose agency oversees Kalshi and Polymarket as registered designated contract markets, also noted some recent internal enforcement actions executed at Kalshi, suggesting that the firm is fulfilling its duties to police fraud and manipulation. Kalshi went after two high-profile instances of potential cheating on its platform, suspending and fining a producer who works with the popular Mr. Beast show for betting on the outcome of the show's events and a politician for betting on his own candidacy for California's governorship. And last week, Polymarket refreshed its market-integrity rules to clarify that it doesn't allow trading on tips or stolen information from people who have a legal duty to keep it secret or trading by people who can influence the outcome of the bet. However, federal prosecutors have also reportedly spoken to the prediction market firms about whether certain instances could trigger insider-trading cases. Inside trades? A TRM analysis suggested insiders may have made bets on the recent U.S. attack on Iran. At Polymarket, the market for "Will the US strike Iran by Feb 28, 2026?" became its largest over, with $73 million in interest, and that date marked the beginning of the war . TRM said it identified four wallets that predicted the strike with about $40,000 in bets that eventually won $872,000. "These four wallets had largely never traded before and then came in at similar times to place a bet when the U.S. would strike Iran," TRM said in a report last week. Though it doesn't definitively prove insider trading, all four wallets were funded the same way in a narrow period, and all of them went dark after collecting these winnings. If Trump administration officials are uncovered for wagering on military actions , that could lend energy to the bills meant to restrict the prediction platforms. Neither of the leading prediction market companies responded to requests for comment on the onslaught of bills in Congress. "It seems some of them have little chance of moving forward," Preiserowicz said. "Other ones, maybe a bit more so, but I think it's up in the air right now." While Congress weighs action (or inaction), the CFTC has started its formal rulemaking process and sought public comments. Normally, that's a process that could extend a couple of years, but Selig is currently the lone member of what's meant to be a five-member commission, so he can act quickly without having to consult with others. Preiserowicz estimated that the agency could finish a final rule before the year is out. In the meantime, to get ahead of the insider-trading elements, Davis said some clients are already addressing the question: Do we need new confidentiality duties to formally identify employees who will be insiders in this betting realm? "The CFTC is going to have its regulatory framework in there, and I think the protections are trying to come into place with the platforms themselves," Davis said. Like the crypto industry, she said, prediction markets are "just going to keep on continuing to grow and actually become more institutionalized." In a current ad blitz on the streets and public transportation in Washington, D.C., Kalshi has been reminding the public that it won't tolerate market abuse, saying in one of the advertisements, "RULE #1, KALSHI BANS INSIDER TRADING, Because Kalshi is a federal regulated U.S. exchange." But despite the firms emphasizing their own anti-insider-trading policies, government officials have begun taking matters into their own hands. In California, Governor Gavin Newsom has pursued a statewide policy to ban government officials there from making prediction market trades on topics they have inside information on. Representative Seth Moulton, a Massachusetts Democrat, isn't waiting for legislation, having banned his own staff from participating in prediction markets that involve matters that may come before them. "My office has not, and will not, engage in these trades that run counter to every principle of a clean, honest government that works for the people," he said in a statement last week. "I will always hold myself and my team to the highest ethical standards, and I call on every single American elected official to do the same.” More For You The Definitive Stablecoin Landscape Series: North America By CoinDesk Research Mar 26, 2026 Commissioned by Ripple As stablecoins evolve into core financial infrastructure, North America leads. This report maps the regulation, market shifts, and players driving adoption. Why it matters : Stablecoins are entering their third phase of evolution - the institutionalization era - becoming increasingly embedded into core financial infrastructure. As institutions prioritize transparency and compliance, regulated issuers like USDC, RLUSD, and PYUSD are steadily gaining share with RLUSD surpassing $1B in market cap within its first year. North America, leading in regulatory frameworks and institutional distribution, is at the center of it all. View Full Report More For You Fairshake's $10 million Illinois misfire marks first big hitch in crypto political surge By Jesse Hamilton | Edited by Nikhilesh De Mar 18, 2026 The crypto sector's leading political action committee devoted more than 5% of its war chest trying to defeat a Senate candidate who just won her primary. What to know : The industry's super PAC, Fairshake, hit its biggest-ever campaign loss with its failed and very expensive opposition of Illinois' lieutenant governor in the state's Democratic primary this week. But the loss highlights a mostly successful record (and a continuing willingness to spend big), a spokesman for Fairshake said. Overall, the... 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