Prediction markets were already under pressure before the Iran war started. In January, a user on Polymarket raked in $400,000 by correctly predicting the ouster of Venezuelan President Nicolas Maduro, setting off alarms about insider trading in financial instruments tied to geopolitical events. When the U.S.-led military action against Iran began in late February, prediction markets lit up with war-related contracts. That combination of factors accelerated something that was already moving: a coordinated legislative push to regulate or dismantle prediction markets operating in the United States.
Since January, at least eight prediction market bills have been introduced in Congress. Some target insider trading specifically. Others go further. Sens. Adam Schiff of California and John Curtis of Utah introduced legislation that would bar sports prediction market contracts entirely. A second bill led by Sens. Jeff Merkley and Elizabeth Warren, along with Rep. Jamie Raskin, would prohibit contracts tied to elections, government actions, war, and sports. The breadth of that legislation reflects a concern that goes beyond insider trading. Some lawmakers believe prediction markets have become a mechanism for well-connected individuals and political actors to profit from information they should not be able to monetize at all.
The CFTC, the federal regulator with primary jurisdiction over derivatives markets, has taken an aggressive posture in defense of the platforms it has already authorized. Last week the agency sued three states, Arizona, Illinois, and Connecticut, which had issued cease and desist orders to prediction markets they claimed violated state gambling laws. The CFTC's position is that federal law governs these instruments and state actions are preempted. The three states involved are pushing back. The legal question of whether prediction markets are regulated commodities or unlicensed gambling is now heading toward the courts.
The platforms themselves have tried to get ahead of the legislative pressure. Kalshi announced it would block politicians, athletes, and other individuals with material nonpublic information from placing bets on contracts related to their own campaigns or games. Polymarket rewrote its terms to explicitly prohibit trading on contracts where users might possess confidential information or could influence the outcome. Both companies have hired lobbyists and have been making the case directly to members of Congress that prediction markets serve a legitimate public function: they aggregate dispersed information about the probability of future events and make that information visible in real time. Defenders of the platforms point to research showing that prediction markets often outperform polls and expert forecasts on major events. Whether that argument will carry weight in a Congress that is watching Iran war bet volumes is unclear.
The Trump family has also entered the picture. The family media company announced plans to open its own prediction market, Truth Predict, which adds a political dimension to a debate that was already complicated. Democrats have been skeptical of the platforms from the start, pointing to conflicts of interest when participants with access to decision-makers can trade on outcomes those decision-makers control. Some Republicans have raised similar concerns, particularly around military and national security events. Sen. Chris Murphy of Connecticut said any comprehensive regulation has a slim chance of passing this Congress, but that statement came before the CFTC lawsuits against states were filed, and the political dynamics have shifted.
What happens next will determine whether prediction markets become a permanent part of the American financial landscape or get regulated out of their current form. The most likely near-term outcome is some version of targeted insider trading restrictions that both platforms have already voluntarily adopted, without a broader ban on specific event categories. A full prohibition on election or war contracts would face First Amendment challenges and would almost certainly get litigated for years. The more consequential outcome is whether the CFTC prevails in its jurisdictional fight against the states. If federal preemption holds, prediction markets get a degree of regulatory certainty they have never had. If states win the right to regulate them independently, the patchwork environment that already exists gets significantly more complicated. The hearing schedule in Congress is expected to intensify through May. The court cases will take longer.