The United States advocacy organization Better Markets has asserted that prediction markets operated by Kalshi and Polymarket are essentially indistinguishable from gambling activities, advocating for their regulation under state gaming regulations instead of by federal derivatives authorities.
This stance was highlighted by Benjamin Schiffrin, Director of Securities Policy at Better Markets, in a recently released fact sheet titled “Predictably, ‘Prediction Markets’ Are Just Casinos,” which claims these platforms are not true markets and utilize the prediction-market terminology to elude state gambling regulations.
“Prediction markets bear a striking resemblance to casinos, street corner bookmakers, gambling applications, or any other betting venues,” stated Benjamin Schiffrin, emphasizing that their classification as prediction markets helps them sidestep comprehensive state regulations that have historically governed gambling to safeguard customers and limit organized crime influences.”
The report contends that prediction markets do not align with conventional financial markets like stocks or fixed income, asserting that they lack crucial regulatory frameworks, equal treatment among participants, and mechanisms to ensure integrity and transaction fairness.
“Authentic markets are meticulously regulated to affirm that activities are credible, ensuring an equitable landscape where traders fulfill their commitments,” Schiffrin noted. “This leads to legitimate transactions and fair interactions among participants. Genuine markets have oversight to avert conflicts of interest and facilitate smooth interactions between buyers and sellers; such features are entirely absent in these so-called prediction markets.”
Better Markets also expressed worries about potential risks to consumers, highlighting how users of prediction markets often do not represent the general population, frequently skewing towards young men—a demographic deemed susceptible to risky betting habits. The group referenced a class-action lawsuit against Kalshi, which claims the platform targeted users with troubled betting behaviors while presenting itself as a more secure alternative to conventional sports betting.
The report cautioned that prediction markets are especially vulnerable to manipulative practices such as insider trading, noting the absence of insider trading regulations that are prevalent in stock and bond markets.
“Kalshi and Polymarket assert that by disclosing what the ‘crowd’ anticipates occurring, their platforms yield insights that surpass traditional polls or forecasts in accuracy,” Schiffrin commented. “The reality, however, is that without access to insider information, users on these platforms possess no better chance of predicting an election’s winner or a sport’s outcome than the average person.”
As evidence, the report referenced a trade on Polymarket associated with events involving Venezuelan President Nicolás Maduro, which it described as exhibiting “all the signs of insider trading.”
While prediction markets are regulated by the Commodity Futures Trading Commission (CFTC), an aspect the industry uses to justify their national operations, Better Markets contended that the CFTC is ill-equipped to oversee what it considers gambling activities. Several federal court rulings, according to them, have classified prediction market platforms as being akin to gambling operations.
“For these reasons, it is imperative that prediction markets undergo stringent regulation,” Schiffrin stated. “Yet, Kalshi and Polymarket argue that they should fall under the CFTC’s purview, which is meant for derivative market regulation. The CFTC is not suitably prepared to regulate what fundamentally constitutes gambling. Recent federal court findings reinforce this sentiment, as several judges have categorized these platforms as indistinguishable from gambling.”
He further remarked: “Policymakers should heed these judicial rulings. Prediction markets must be acknowledged as they are—unregulated, 24/7 gambling establishments, which must be governed as such to safeguard public interest before irreversible damage occurs.”