Prediction Markets Are (Obviously) Gambling

Sports betting has been a net-negative for society. Prediction markets will be 100x worse.

On December 3rd, an alleged Google insider earned $1.2 million in a single day. They didn’t receive a raise, exercise any stock options, or land one of those massive signing bonuses Mark Zuckerberg is handing out to AI researchers. They did it on Polymarket.

Going by the username AlphaRaccoon, the Google insider placed a total of 23 bets. Despite odds of just 0.2%, the insider won $200,000 by predicting that 20-year-old American singer d4vd would be Google’s #1 most searched person of 2025. They then bookended the other side of the trade, correctly predicting that Bianca Censori, Pope Leo XIV, and Donald Trump would not be Google’s #1 most searched person this year.

In total, the anonymous Polymarket trader won 22 of their 23 bets. Combined with the $150,000 they previously won by correctly predicting the exact day Google would release Gemini 3.0, the insider took home more than $1.3 million. When another Polymarket user exposed what was happening, they changed their username to hide.

This would typically be a slam-dunk insider trading case. Only someone with access to internal Google data could hit on 22 out of 23 predictions just minutes before the results “accidentally” leaked. Market surveillance technology would immediately flag the activity, and the SEC would have everything it needed to prosecute the individual.

But this isn’t the stock market; it’s Polymarket. The anonymous trader will never be identified because Polymarket doesn’t require KYC. That’s just a fancy way of saying that Polymarket doesn’t care who you are. Anyone with an internet connection can track a user’s trading activity, but personal info is masked through crypto wallets.

When asked about the allegations, Polymarket founder and CEO Shayne Coplan said that insider trading on the company’s markets is not actively prohibited and that he thinks it is “cool” that people now have the financial incentive to divulge information.

In other words, prediction markets view the ability to trade on insider information as a feature, not a bug. And Coplan isn’t the only one. Coinbase CEO Brian Armstrong recently said at the NYT DealBook Summit that insider trading on prediction markets is not a clear-cut issue because “if your goal, for 99% of people, is to get a signal about what’s happening in the world, then you actually want insider information.”

Armstrong is essentially saying that it’s acceptable for insiders to profit from insider information because it gives everyone else more accurate news. We’ll come back to why that’s a problematic stance in a second, but let’s start with the basics. To understand why prediction markets have become so popular (and the impact they could eventually have on society), we must first understand how they came to life.

From Horse Racing To Las Vegas To Smartphones

America’s relationship with gambling is as long as it is complex. Academics will tell you the whole story: Games of chance arrived in British-American colonies with the first settlers; wealthy Virginian landowners cemented their economic status by controlling the birth of gambling on horse races; and each of the 13 British colonies that became states promoted their own lotteries through newspaper advertisements.

But the summarized version is just as effective: Americans have always gambled; religious and moral backlash led to prohibition; a compromise was reached.

For decades, the American government has essentially taken the approach that people will gamble regardless of the laws you implement, so they made it legal but difficult. If you wanted to play blackjack or roulette, you had to travel to a physical casino in places like Las Vegas or Atlantic City. Government entities were established to ensure that casino games were run fairly. But by confining gambling to physical locations, it became accessible for the committed yet also largely invisible to the rest of society.

Then, the internet changed everything. Online poker rooms began to pop up at the turn of the 21st century, and Daily Fantasy Sports (DFS) became legal in 2006. By making paid, short-duration, skill-based contests legally distinct from gambling, DFS companies like FanDuel and DraftKings leveraged the smartphone revolution to acquire millions of users. The first edition of the iPhone had just come out, and with mobile apps and high-speed internet now at your fingertips, the ability to play real-time fantasy sports contests for money led to an addictive level of instant gratification.

PASPA was then repealed in 2018. This effectively ended the federal ban on state-authorized sports betting, allowing individual states to legalize and regulate the practice. Delaware began accepting sports bets just three weeks later, and 38 states (plus Washington, DC, and Puerto Rico) now offer legal sports betting in some form.

In total, approximately $600 billion has legally been wagered on sports since PASPA was repealed in 2018. Sportsbooks and casino operators have collectively generated more than $50 billion in revenue, leading to more than $10 billion in state tax revenue.

Prediction Markets Are Just A Regulatory Loophole

(Polymarket founder Shayne Coplan with UFC President Dana White)

Contrary to popular belief, prediction markets aren’t new. The University of Iowa established the first institutionalized prediction market in 1988 to forecast U.S. presidential election outcomes. Several others have come to market since (Intrade and PredictIt), but the growth of prediction markets has been limited by regulation. The CFTC allowed them to exist, but only for educational and research purposes.

That changed in 2020 when Kalshi received full Designated Contract Market (DCM) status from the CFTC. The CFTC actually fined Polymarket $1.4 million in 2022 and forced it to block all U.S. users from accessing the platform, primarily because Polymarket launched without receiving the necessary approvals. But that case has been settled, Polymarket has obtained its license, and it is now reopening to U.S. users.

From a mechanical perspective, there are a few key differences between prediction markets and sports betting platforms. While sportsbooks have direct financial exposure to every bet because they act as the counterparty, prediction markets operate as peer-to-peer exchanges where traders buy and sell contracts with one another.

Here’s how it works: For each event — e.g., Will X candidate win the election? — the market issues two complementary tokens: YES and NO. These tokens sum to $1. If a YES token is trading at $0.60, it implies a 60% probability that the candidate will win. At resolution, if the candidate you chose won the election, a winning token purchased for $0.60 can be redeemed for $1, while the losing token expires worthless.

Beyond market mechanics, the primary difference between sports betting and prediction markets lies in how they are regulated. Sportsbooks are regulated at the state level, while prediction markets are regulated federally by the CFTC. Unlike sportsbooks, which must be approved on a state-by-state basis, prediction markets are available in every state, regardless of whether that state has approved sports betting.

This regulatory gray zone effectively allows prediction markets to operate as sportsbooks without the regulatory red tape. For example, despite Kalshi offering its users thousands of prediction markets daily on everything from whether Donald Trump will visit outer space this year to the daily temperature in New York City, more than 90% of the platform’s volume comes from traditional sports betting markets.

Sportsbooks initially tried to address the growth of prediction markets through the legal system. But with court rulings still uncertain and Polymarket and Kalshi both gaining political leverage by hiring Donald Trump Jr. as a special advisor, pretty much every major sportsbook is or has already launched a prediction markets product.

And it’s not just sportsbooks. Robinhood and Coinbase have both launched prediction market products that integrate directly with your financial accounts. This has created a scenario that could be even worse than the implementation of online sports betting.

Sports Betting Is Bad, Prediction Markets Will Be Worse

Objectively speaking, the legalization of sports betting has been a disaster. We can talk about free markets and individual liberty, but it doesn’t take a genius to realize that the U.S. Supreme Court’s decision to overturn PASPA has been a net-negative.

Studies show that for every $1 wagered on sports betting, household savings are depleted by $2. Online sports betting has increased the risk of household bankruptcy by 10%. Domestic violence issues in states with legalized sports betting are way up, along with auto loan and credit card delinquencies. When a new state goes live with online sports betting, Google searches for gambling addiction jump more than 35%.

Some people will try to sound smart by telling you that young men and lower-income households have turned to gambling because they feel like there is no way out. Houses are too expensive, and inflation is crushing their take-home pay. But let’s be honest, gambling can be addictive, and society has long viewed it as an unacceptable, inappropriate, or even sinful vice. Only recently has it become publicly acceptable.

Now, imagine how much worse America’s gambling addiction would be if sports betting had no guardrails and there were games 24/7/365. That’s prediction markets.

Prediction markets are not required to follow the same marketing guidelines as sportsbooks. While DraftKings and FanDuel have lawyers review every word in every piece of public communication out of fear of state regulators, Kalshi and Polymarket are buying X accounts to drive views by intentionally disseminating misleading news.

Some prediction markets have even created financial incentives for crime or bodily harm, such as Polymarket, which allowed users to wager on the total number of acres burned during the California wildfires in January. Polymarket says it can aggregate information and forecast outcomes more quickly and accurately than the news does, but do we really need to know the exact date that Mr. Beast will reach 500 million YouTube subscribers?

That isn’t news; it’s addictive gambling slop disguised as news. And while sports may be a large part of prediction markets today, don’t expect that trend to last much longer.

Similar to how sports betting companies flooded every aspect of the fan experience with ads — media partners, leagues, teams, stadiums, podcasts — prediction markets will do the same in news and entertainment. Kalshi, for instance, has partnered with CNN and CNBC. These media organizations have flawed business models and will happily charge higher-than-average advertising rates to promote prediction markets.

But where do you draw the line? Kalshi co-founder Tarek Mansour says “the long-term vision is to financialize everything,” while Robinhood’s Vlad Tenev expanded on that thought by claiming that “people are starting to realize that using prediction markets can be cheaper than conventional fire, flood, and hurricane insurance.”

So, not only do these companies want you to gamble on literally everything, from the 2028 presidential election to what words Netflix will say on its quarterly earnings call, but now they want the average person to hedge their financial exposure via a CFTC-regulated event contract that might have a quantitative trading firm on the other side.

The reality is that prediction markets don’t want to stop insider trading because that's exactly what makes the platform valuable. The entire value proposition of a prediction market is that it can deliver news more accurately than anyone else. But the only way to get that news is by financially incentivizing people with inside information to leak it. The platform can claim it’s more accurate than legacy news, and the trader profits.

In traditional finance, we decided long ago that this was unacceptable. Not because information should be suppressed, but because markets stop functioning when trust collapses. By allowing individuals with inside information to profit directly at the expense of retail traders, prediction markets have created a zero-sum environment.

The current system takes the most corrosive aspect of sports betting and strips away the remaining guardrails. Prediction markets are always on, federally accessible, lightly regulated, and increasingly embedded in news, finance, and entertainment.

These platforms don’t just encourage gambling. They normalize the idea that every announcement, event, and tragedy should be tradable. That may be a good business model for venture capital investors, but it’s an objectively terrible outcome for society.

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