Congressional Scrutiny of Prediction Markets Intensifies Amid Insider Trading Concerns

The prediction market industry in the United States has seen significant expansion, with monthly trading volumes skyrocketing from $1.2 billion at the beginning of 2025 to over $20 billion by early 2026. Platforms like Kalshi and Polymarket have emerged as key players, offering bets on various outcomes, including political events and sports. However, this rapid growth has attracted the attention of lawmakers, particularly following allegations of insider trading linked to geopolitical events, such as the U.S.-Israel conflict with Iran.

Prediction markets face legislative crackdown; if the Democratic Party regains Congress in 2027, regulatory pressure may intensify

Lawmakers are increasingly concerned about potential insider trading on prediction markets, especially regarding bets made by government officials who may have advance knowledge of significant events. In response, bipartisan legislation has been introduced, including the Public Integrity in Financial Prediction Markets Act, which seeks to prohibit government employees, including members of Congress, from participating in prediction markets related to policy decisions. This legislative push has gained traction amid fears that insider knowledge could undermine the integrity of these markets.

Prediction markets face legislative crackdown; if the Democratic Party regains Congress in 2027, regulatory pressure may intensify

Several legislative proposals are currently under consideration in Congress. The STOP Corrupt Bets Act aims to ban contracts related to elections, government actions, sports, and military operations. The BETS OFF Act specifically targets trades involving sensitive events such as war and terrorism. Additionally, the Prediction Markets Are Gambling Act supports state efforts to regulate sports event contracts under existing gambling laws. These proposals reflect a growing consensus among lawmakers that the current regulatory framework is inadequate.

Prediction markets face legislative crackdown; if the Democratic Party regains Congress in 2027, regulatory pressure may intensify

Kalshi operates under the oversight of the Commodity Futures Trading Commission (CFTC), which asserts exclusive jurisdiction over prediction markets. In contrast, Polymarket, known for its offshore operations, is expanding its regulated offerings in the U.S. Both companies argue that their products are sophisticated financial instruments rather than gambling. However, state officials from Arizona to Massachusetts contend that prediction markets should adhere to the same regulations as traditional sportsbooks and casinos.

PoliticoPrediction markets face legislative crackdown; if the Democratic Party regains Congress in 2027, regulatory pressure may intensify

While there is bipartisan support for regulating prediction markets, skepticism remains, particularly among some Republican lawmakers. Concerns have been raised about the influence of the Trump family, with Donald Trump Jr. advising Kalshi and Polymarket. Some Democrats, like Senator Jeff Merkley, doubt that the Republican-led Congress will take substantial action against these markets due to their ties to prominent figures within the party.

PoliticoPrediction markets face legislative crackdown; if the Democratic Party regains Congress in 2027, regulatory pressure may intensify

As Congress prepares to hold hearings on prediction markets, the outcome remains uncertain. The Agriculture panels in both the Senate and House are expected to lead discussions on the issue, with promises of bipartisan engagement. The CFTC has also committed to addressing insider trading concerns, indicating that regulatory measures may be forthcoming. The future of prediction markets hangs in the balance as lawmakers navigate the complexities of regulation, public integrity, and the burgeoning industry.

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• “There seems to be a growing consensus that the status quo is unsustainable,” — Rep. Ritchie Torres, D-N.Y.

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• “What I would like to see is an economic purpose in regulated derivatives markets,” — Rep. Bill Foster, D-Ill.

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• “Prediction markets are an emerging technology, yes, but they’re not all the same, and we want to highlight those big distinctions,” — Elisabeth Diana, Kalshi spokesperson.

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