According to Bloomberg Business, the prediction market industry saw the valuations of its pioneers, Kalshi and Polymarket, double numerous times in 2025, leaving each worth over $10 billion. Weekly trading volumes now hit billions of dollars, fueled by contracts on everything from the capture of Venezuelan President Nicolás Maduro to the return of Jesus Christ in 2026. A single trader recently made nearly $400,000 on Polymarket betting on the Maduro operation, placing big trades just before President Donald Trump’s public announcement, sparking insider trading concerns. Traditional financial giants like CME Group and Cboe have committed billions to the sector, while Robinhood is acquiring a derivatives exchange to launch its own event contracts. However, the Commodity Futures Trading Commission (CFTC) is understaffed and its policing role is unclear, even as lawsuits from state regulators who view these markets as gambling pose an immediate risk.
Truth Machines or Casinos?
Here’s the thing about the prediction market pitch: it’s incredibly seductive. The founders aren’t just selling a betting platform; they’re selling a “truth machine,” a scientific engine that harnesses the “wisdom of crowds” and the raw power of financial incentive to surface accurate information about everything. And look, in some cases, it seems to work. The markets move in real-time on geopolitical events, offering a pulse that traditional finance can’t match when exchanges are closed.
But then you peek under the hood. For every high-minded contract on an election or a Fed decision, there are scores on South Park dialogue or celebrity engagements. The “data” they spin off includes the collective insight on whether the Atlanta Hawks won last night. Is that really a social good? It feels a lot like the same speculative mania we saw with meme stocks and NFTs, just wrapped in a new, intellectually respectable package. The promise of a civic purpose—letting people hedge life’s risks—gets drowned out by what it mostly is: gambling. Sophisticated, tech-enabled gambling, but gambling nonetheless.
The Insider Trading Problem
The Maduro trade is the perfect, messy example of the core tension. A trader cashes in big right before a major presidential announcement. Now, was that brilliant analysis or inside information? In a traditional market, there are systems (flawed as they may be) to investigate that. In these prediction markets? It’s often completely unclear. Markets can be so thin that one well-informed player can move the needle, and when the events are things like military operations or corporate coups, the potential for abuse is massive.
And it gets creepier. Think about contracts on wildfires or other disasters. What’s to stop someone with the ability to start a fire from betting on it? The article points out there are few systems to root out bad actors, especially when traders can be anonymous. That’s not a minor bug; it’s a fundamental flaw in the “truth machine” argument. If the market can be easily manipulated or driven by insiders, then the signal is just noise, and expensive, dangerous noise at that.
Regulatory Wild West
So who’s in charge? That’s the billion-dollar question. The exchanges say they answer only to the CFTC, but as the article notes, that agency is down to a single commissioner and has shown little appetite for policing this boom. Former CFTC commissioner Kristin Johnson said it’s “completely unclear” what their policing role even is. Meanwhile, state regulators are going to court to have these markets declared illegal gambling.
And into this vacuum walks… the Trump family. The White House has embraced speculative finance, Trump’s media platform plans a prediction market app, and Donald Trump Jr. is advising Kalshi and Polymarket. That political connection might be the biggest short-term accelerant—or the thing that finally draws a massive regulatory backlash. The industry’s momentum has no obvious brake, and that’s probably the scariest part for anyone who remembers how other financial “revolutions” have ended.
A Supercycle or a Bubble?
The financiers and founders, with their MIT and Wall Street pedigrees, are convinced this is different. They talk about a “supercycle” and trading “trillions of contracts.” They see a future where this tech transforms insurance, making it cheaper and more accessible. Jeffrey Yass of Susquehanna calls it a “tremendous area of growth.”
But listen to the skeptics, like economists Ken French and Burton Malkiel. French argues these markets largely “creat[e] risk that doesn’t have to be borne.” Malkiel suspects the positive effects will be limited and the negatives will “cost people a lot of money and a lot of headaches.” They have a point. For every legitimate hedger, how many are just speculators? The infrastructure for real, large-scale hedging on life events doesn’t exist yet. What exists is a platform for betting, often on absurdities.
Basically, we’ve seen this movie before. A new financial product gets hailed as democratic, empowering, and world-changing. It attracts massive capital and hype. And then, eventually, reality sets in. The prediction market boom has a better intellectual framework than most, but it’s still built on a foundation of pure speculation. It might create some useful data and niche hedging tools. But the idea that it’s rebuilding capitalism? That’s probably the biggest prediction of all—and one I wouldn’t bet on.
