Prediction markets, which allow people to bet on a wide range of future events, have come under renewed scrutiny in recent months as suspicious trades have emerged.
On Thursday, a US Army Special Forces soldier involved in the capture of Venezuelan President Nicolás Maduro was accused of using classified information to bet on events related to the mission.
Here’s the lowdown on this growing phenomenon.
What are prediction markets?
Prediction markets like Polymarket or Kalshi are essentially gambling sites. But instead of focusing on a specific area like sports, punters bet on current events, whether serious or frivolous. They can bet on when Prime Minister Keir Starmer of Britain will leave office, how many social media posts Elon Musk will send next month, or how hot it will be in Paris that day.
If they are right, they win money from those who made incorrect predictions. The platforms themselves can generate revenue by charging a fee for each bet.
Polymarket and Kalshi have millions of users betting billions of dollars on thousands of different markets, including election results, tariff rates and oil prices.
Markets can appeal to people who like to gamble, people who follow current events and people with strong opinions. They can also be attractive to people who are willing to use inside information to get large amounts of money.
Are these markets legal?
In most parts of the world, yes.
In the United States, it’s more complicated: Polymarket hasn’t been available in the country for several years, but in the last few months it has started betting on some markets.
Regulated by the Commodity Futures Trading Commission like other US-based prediction market platforms, Kalshi offers a wider range of markets to US customers.
(People in the United States who want to bet more on international sites often use a virtual private network, or VPN, to mask their location and gain more betting options.)
Prediction markets are also available in states that have restrictive gambling laws. This is because prediction markets are not considered bookmakers – setting odds and paying out winnings and pocketing losing bets. Instead, the platforms claim to be more of a commodity exchange, facilitating “trades” and just taking a cut.
Can markets help predict events?
Maybe. Studies have shown that large groups of people are better at forecasting than individual experts, a phenomenon often called the “wisdom of crowds.”
This means that watching predictive market data could be useful in predicting future events related to politics, business, foreign affairs, or even the weather.
So, what could go wrong?
Before Thursday’s indictment of a U.S. soldier — who federal prosecutors say made more than $400,000 betting on outcomes related to a U.S. military operation in Venezuela — there were a series of mysterious bets that raised eyebrows, to say the least.
Before some big events, such as the US-Israeli attack on Iran or the Oscars, a large number of bets came into the prediction markets, most of which correctly predicted what was going to happen. Maybe these people were lucky or extremely savvy. But suspicions have also been raised that they may have had privileged inside information and used it for their bets – just as some investors can use insider information to illegally make money in the stock market.
A New York Times analysis of Polymarket data showed hundreds of bets on one day last June predicting that the United States would attack Iran within a day. The Times found that such bets used to be quite unusual.
The United States attacked Iran and these punters profited handsomely.
Has there been any backlash to these cases?
Some US states have recently taken steps to outright ban prediction markets.
Both Polymarket and Kalshi also said they were tightening their safeguards against insider trading. Kalshi banned three political candidates this week, saying they tried to trade on their own races.
The White House this month warned staffers not to use inside information about the Iran war to bet on forecasts or other financial markets.
How long have these markets been around?
While prediction markets have taken off in the last few years, they have been around longer. For example, Iowa’s pioneering electronic markets that allow political betting date back to 1988.
In 2003, the Pentagon planned an online market where bettors could predict terrorist attacks, assassinations and other seismic political events, hoping it could provide useful data.
The plan sparked outrage from lawmakers who found it horrifying that people could profit from terrible events, and the plan was quickly scrapped.
