Prediction Markets in the U.S. Under Increased Legal Pressure

Prediction markets, which blend financial speculation with event forecasting, have become a cornerstone of modern economic and recreational engagement. These platforms, where users trade contracts based on future outcomes, are reshaping how individuals and institutions interact with everything from sports events to geopolitical developments. As regulatory debates intensify and technological advancements accelerate, the sector faces both unprecedented opportunities and complex challenges.

The Global Landscape of Prediction Markets

Prediction markets operate at the intersection of finance and gambling, offering users the ability to wager on outcomes ranging from election results to sports championships. The global prediction market industry, valued at approximately $6 billion, is projected to grow rapidly as decentralized platforms like Polymarket and regulated exchanges like Kalshi gain traction. These platforms leverage blockchain technology to ensure transparency and reduce reliance on centralized authorities, appealing to a generation of users seeking trust-less systems.

A key driver of this growth is the diversification of market operators. Established players like Crypto.com have entered the space, launching sports prediction products tied to events such as the Super Bowl. In December 2024, Crypto.com’s platform attracted over $1 billion in wagers for Super Bowl contracts, with the Kansas City Chiefs emerging as the favorite at 23% odds. Meanwhile, Polymarket, a decentralized platform built on Ethereum, processed billions in trades during the 2024 U.S. presidential election, highlighting the public’s appetite for event-driven speculation.

Regulatory Crossroads and Market Legitimacy

The classification of prediction markets remains a contentious issue. Under the Commodity Exchange Act, platforms like Kalshi argue their contracts are financial derivatives rather than gambling instruments. This distinction allows them to operate under Commodity Futures Trading Commission (CFTC) oversight, bypassing state gambling regulations. However, critics like the American Gaming Association (AGA) contend this creates regulatory loopholes, enabling operators to avoid state taxes and responsible gaming requirements.

Kalshi’s 2024 legal victory against the CFTC’s election betting ban set a precedent, with a federal judge ruling that prediction markets do not inherently constitute gambling. This decision emboldened platforms to expand into politically sensitive markets, though sports-related contracts remain under scrutiny. The CFTC’s ongoing probe into Crypto.com and Kalshi centers on whether sports event trading should fall under federal derivatives regulation or state gambling laws—a determination that could redefine the industry.

Economic Impact and Market Integration

Prediction markets are increasingly influencing broader economic trends. Analysts project global inflation to ease from 5.8% in 2024 to 4.3% in 2025, with interest rate cuts expected in the U.S. and Eurozone. Against this backdrop, platforms like Kalshi and Polymarket serve as barometers of public sentiment, offering insights into market expectations. For instance, gold and Bitcoin are favored as hedges against geopolitical uncertainty, with Bitcoin buoyed by pro-crypto policies under the Trump administration.

Sports prediction markets also intersect with the $13.88 billion sports analytics industry, which relies on AI-driven performance metrics to inform betting odds. Football clubs, for example, use analytics to assess player effectiveness, track tactical success rates, and scout talent—data that prediction markets increasingly incorporate into pricing models. This synergy between analytics and speculation creates a feedback loop, where market prices reflect real-time data and influence team strategies.

Key Players and Competitive Strategies

The prediction market ecosystem features diverse business models:

Kalshi: As the first CFTC-regulated event contracts exchange, Kalshi emphasizes legal compliance and market accuracy. Its proprietary Brier Skill Score (BSS) methodology quantifies forecasting precision, with markets calibrated to reflect collective intelligence.
Polymarket: This decentralized platform charges 2% transaction fees on trades, generating revenue while maintaining liquidity through automated market makers. In 2024, Polymarket’s election markets saw a single bettor win $80 million by correctly predicting a Trump victory.
Crypto.com: Leveraging its cryptocurrency user base, the platform integrates prediction markets into its app, offering derivatives-style trading. Its Super Bowl contracts allowed users to exit positions pre-game—a feature distinguishing it from traditional sportsbooks.

The products are functionally identical to sportsbooks—only the regulatory designation differs

Competitors are adopting varied strategies to capture market share. Sporttrade, operating under New Jersey gambling laws, mirrors traditional sports betting but with real-time trading features. CEO Alexander Kane notes, “The products are functionally identical to sportsbooks—only the regulatory designation differs”. Conversely, BetMGM and DraftKings are cautiously exploring prediction market integrations, recognizing their potential to complement existing offerings.

Tribal Concerns and Regional Implications

Federally regulated markets pose unique challenges in states with tribal gaming compacts. In New Mexico and California, where Native American tribes hold exclusive casino rights, prediction markets threaten revenue streams earmarked for community services. Tribal leaders argue that CFTC oversight undermines decades-old agreements, potentially diverting billions from education and healthcare initiatives.

This tension mirrors broader conflicts between state and federal jurisdiction. The 2019 Supreme Court decision to overturn the federal sports betting ban delegated authority to states, creating a patchwork of regulations. Prediction markets, operating nationally under CFTC rules, expose inconsistencies in enforcement—a gap platforms like Kalshi exploit to expand their reach.

Technological Innovations and User Engagement

Blockchain technology remains central to market evolution. Polymarket’s Ethereum-based smart contracts ensure transparent, tamper-proof settlements, while Crypto.com’s app integrates prediction markets with cryptocurrency wallets, streamlining user access. The rise of AI-driven analytics further enhances market accuracy, with algorithms processing real-time data to adjust odds dynamically.

User engagement metrics underscore the sector’s vitality. During the 2024 election cycle, Polymarket processed over $5 billion in trades, while Kalshi’s Super Bowl markets saw participation double compared to 2023. These platforms also attract institutional investors seeking alternative data on public sentiment—a trend likely to accelerate as predictive analytics tools mature.

Future Trajectories and Industry Projections

The CFTC’s upcoming roundtable discussions could catalyze regulatory clarity, potentially fostering hybrid models where sportsbooks and prediction markets coexist under shared oversight. Proposed compromises include revenue-sharing agreements between platforms and states, as well as CFTC-mandated responsible gaming features like spending limits.

Globally, the Asia-Pacific region is poised for rapid growth, driven by increasing internet penetration and AI adoption. China and India, with AI deployment rates nearing 60%, are expected to dominate the sports analytics segment, further integrating prediction markets into mainstream finance.