TLDR
US regulators and lawmakers are ramping up oversight of prediction markets such as Kalshi and Polymarket, focusing on insider trading, gambling laws, and who is allowed to participate.
- Congress and the CFTC are targeting insider trading and conflicts of interest on prediction markets, especially around elections.
- Legal status in the US is increasingly framed as a tug-of-war between derivatives regulation and state gambling law.
- Crypto-native prediction markets will likely face more KYC, contract bans, and liquidity fragmentation, especially for US users.
Deep Dive
1. Concrete Signs Of Rising Scrutiny
US lawmakers are moving to ban officials from trading on platforms like Kalshi and Polymarket after concerns that they can exploit non public information and directly influence outcomes they bet on. Both chambers are advancing rules and bills to bar members, staff, and even the president and vice president from these markets, with platforms themselves supporting these lawmaker trading bans.
At the same time, election-related activity has exploded: combined monthly volumes on Kalshi and Polymarket reached roughly 24 billion dollars in April, up almost fivefold since late 2025 and exceeding the average monthly handle of US legal sportsbooks, drawing closer scrutiny from the CFTC and ethics watchdogs as they investigate suspicious trades and candidate betting on their own races.
Officials see prediction markets as systemically relevant venues, not niche toys, which makes tighter rules and enforcement more likely, not less.
2. Gambling Law Versus Derivatives Law
In the US, prediction markets sit in a gray zone between derivatives overseen by the CFTC and state-level gambling statutes that treat many event contracts as illegal betting. Reports describe an ongoing jurisdiction fight where federal derivatives oversight coexists uneasily with state gambling claims, leaving classification unresolved and enforcement fragmented.
Regulators are especially wary of contracts on politics and sports, which look most like gambling, even when structured as financial derivatives. That is why some proposals would allow event contracts on economic data while banning or sharply limiting political or sports markets, effectively redrawing product lines rather than banning the entire sector.
3. Impact On Crypto Prediction Markets And Users
Crypto rails made prediction markets effectively borderless, but regulators are now using licensing, geofencing, and user-level enforcement to reimpose national boundaries. Spain, Brazil and others have already blocked or prohibited platforms like Kalshi and Polymarket, and US debates are moving in a similar direction, with growing emphasis on gambling compliance, KYC and venue registration for event markets that touch US users. One analysis warns that gambling regulators are pushing back in ways that could fragment prediction markets, forcing operators into jurisdiction-specific versions.
For crypto users, that likely means: more KYC and contract restrictions on any US-facing product, a shift of unrestricted political or sports markets to offshore or fully decentralized platforms, and thinner liquidity if global pools are carved up by region.
If you rely on prediction markets for signals or hedging, you should assume US-accessible venues will become more regulated, more selective in what they list, and potentially less globally liquid over time.
Conclusion
Rising US scrutiny of prediction markets is driven by real growth in volumes, insider trading concerns, and unresolved questions over whether these platforms are regulated derivatives or gambling. As regulators close in, onshore products are likely to become more compliant and narrower in scope, while truly global, crypto-native markets may face access barriers and fragmented liquidity, reshaping how traders use these markets for information and risk management.
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