Prediction Markets' Rapid Growth Attracts Legal Scrutiny

The surge in popularity of prediction markets — online platforms where users bet on future events — has attracted as much interest as it has brought intense legal scrutiny. As per a new report by the American think tank Pew Research Center, monthly trading volume on prediction markets has exploded from less than $5 billion in September last year to about $24 billion in April this year. The ongoing Fifa World Cup has provided further impetus — New York City-based prediction market platform Kalshi alone saw over $31 billion in notional volume in June, a 70% increase from May, as per reports. Rival predictions platform Polymarket’s international business, too, set a record high in monthly volume in June, with notional trading surpassing $10.8 billion and reversing declines from April and May, the reports add. Even though these markets have existed in the US for decades, their use expanded rapidly after Kalshi began offering contracts based on political events (for instance: ‘Will Trump win the White House’) in 2024. Since then, prediction markets have gone on to encompass a variety of events based on crypto, climate, companies, and even sports . However, these prediction markets have also faced intense scrutiny. In the US, regulators and experts say they are in violation of state gambling laws. Polymarket, for instance, was banned by the Commodity Futures Trading Commission for nearly three years before receiving regulatory clearance to re-enter the US market in September last year. Closer home, in India, the government views them as unauthorised speculative or gambling activities. Regulators have raised concerns about gambling risks, market integrity and consumer protection, even seeking to block access to platforms including Polymarket and Kalshi. In April, the Ministry of Electronics and Information Technology (MeitY) sent a letter to VPN service providers, warning that users were accessing “illegal and blocked prediction market and online betting platforms” despite “domestic prohibitions”. In the letter, the MeitY specifically names Polymarket, which was supposed to be cut off by internet providers. Section 69A of the Information Technology Act allows the Government of India to restrict access to online content, including websites, apps, and social media profiles-the same provision that was used to ban TikTok in India. However, the platforms reportedly continue to allow Indian users to register, who in turn employ the use of VPNs to partake in the prediction market. Another reported concern are the mirror sites, which bury the IP address and skip the signal to appear untraceable. Mirror sites function in a simpler fashion, where a blocked site simply launches under a new domain with a new and slightly altered URL. This can prove to be a more significant loophole, as it makes prediction markets exceedingly easy for users to access. Similar to India, many other countries have imposed restrictions on prediction markets that use money and cryptocurrency for wagers. Last month, Belgium, France, Germany, Italy, the Netherlands, Poland, Portugal, Spain and Switzerland signed a joint declaration pledging closer cooperation against prediction market operators that do not abide by regional laws. The announcement coincided with the FIFA World Cup, a period that was expected to generate significant betting and speculative trading activity. But some are trying to bypass the ban by removing the primary problem factor on which it is based — the exchanging of money upon betting odds. Japanese prediction market platforms are offering rewards in the form of redeemable gift vouchers. Reports suggest that ahead of the country’s elections earlier this year, the activity on prediction platforms spiked, specifically with the platform Miraima, which was the first to start this trend, recording around 1 million users monthly. According to Miraima’s social media handle, users can predict outcomes in areas such as politics and sports without betting money, then exchange correct predictions for gift vouchers. The challenge for regulators worldwide lies in balancing innovation with consumer protection. As regulations distinguish information markets from gambling, prediction markets are increasingly being recognised as a new category at the intersection of finance, technology and data-driven decision-making.