US Stock Market | Betting Beyond Boundaries: The growing heat on geopolitical prediction markets

Prediction markets are facing renewed political scrutiny in Washington after high-profile wagers tied to the removal of Iran’s Supreme Leader generated significant trading volumes and profits, raising ethical and legal concerns about betting on military and geopolitical events.

According to Reuters, bets placed on platforms such as Polymarket and Kalshi on the ouster of Iran’s Supreme Leader, Ayatollah Ali Khamenei, drew intense criticism from Democratic U.S. lawmakers this week. The controversy intensified after Khamenei was killed in Israeli airstrikes on Tehran over the weekend, triggering questions about trades that had been placed months earlier and in the hours leading up to the attacks.

A Reuters review of Polymarket’s website showed that $529 million had been wagered across contracts tied to the timing of potential attacks, while another $150 million was bet on contracts linked to Khamenei’s removal as Supreme Leader. The scale of those bets, particularly those placed shortly before the strikes, prompted lawmakers and analysts to question whether individuals with advance knowledge of military developments may have profited.

Blockchain analytics firm Bubblemaps said on the social media platform X that six accounts earned approximately $1.2 million in profits from Polymarket bets funded just hours before Saturday’s raids. Rival platform Kalshi also listed a market centred on Khamenei’s removal.

Democratic Senator Chris Murphy criticised the legality of such markets and said he would introduce legislation to prohibit wagers tied to military actions, Reuters said. Murphy also alleged, without providing evidence, that individuals close to President Donald Trump were benefiting from the conflict. In response, White House spokesperson Davis Ingle said the administration’s decisions were guided solely by the interests of the American people.

California Representative Mike Levin similarly raised concerns about a Polymarket bet placed shortly before the strikes on Iran. He argued that prediction markets should not become vehicles for profiting from advance knowledge of military operations and called for greater transparency and oversight.

Concerns about prediction markets are not new. Reuters noted that in February, Democratic senators questioned whether such platforms violated U.S. rules and created incentives to stoke conflict or leak classified information. Their comments followed a case in which a trader reportedly made about $410,000 by correctly betting on the ouster of Venezuelan President Nicolas Maduro.The debate comes as prediction markets have surged in popularity, particularly after the 2024 U.S. presidential election, when their real-time probabilities were widely viewed as more accurate than traditional polling in forecasting Donald Trump’s victory, according to Reuters.

These platforms allow users to trade yes-or-no contracts on real-world outcomes ranging from sports to politics and economic events. Contract prices typically fluctuate between zero and 100 cents, paying out once outcomes are confirmed.

However, U.S. law prohibits wagers deemed contrary to the public interest, including those related to war or assassination. Reuters reported that trading on nonpublic information may also be illegal, depending on the nature of the information, the structure of the market and the identity of the trader.

Regulatory oversight remains unsettled. The Commodity Futures Trading Commission, which oversees much of the U.S. derivatives market, previously lost a court battle to block election-related contracts offered by prediction markets. The agency has since said it believes such platforms fall within its jurisdiction and intends to establish a federal framework for oversight.

The financial stakes are significant. Analysts at brokerage Clear Street estimate that global prediction market volumes reached $47 billion last year. The rapid growth has drawn interest from traditional financial firms. Intercontinental Exchange, the parent company of the New York Stock Exchange, has taken a $2 billion stake in Polymarket, while trading platform Plus500 recently introduced prediction markets to its U.S. retail customers through a partnership with Kalshi.

As trading volumes swell and geopolitical tensions rise, the clash between innovation and regulation in prediction markets appears set to intensify, particularly when the events being wagered upon involve matters of war and national security.

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