Prediction markets: The fine line between entertainment and insider trading

Prediction markets.

They let people wager on outcomes, but this is different from gambling?

They cover sports games, but they are not sports betting?

They are completely fine to use and regulated, unless you use one of the non-regulated ones. Considering all of the vague terminology and semantics operators have been known to deploy, how are customers meant to keep up with what is actually allowed?

A lot of the marketing around prediction markets, specifically in the US, paints these platforms as “truth machines.” The idea is that the public can wager on which result they think is “true,” or simply, most likely to happen. If one binary outcome gets more wagers than the other, it is considered an exaggerated expectation for that result to happen.

But what happens if you actually know a “truth,” are you still allowed to place a wager on these “truth markets?” Wrong, that is insider trading. But how is your average Joe meant to know this?

MrBeast Editor caught insider trading 

As part of its investigations into the integrity of its user base, Kalshi uncovered several accounts that had committed insider trading, including Artem Kaptur, the Editor for YouTube giant MrBeast.

Kaptur allegedly placed bets on "material, non-public information" that created a "near-perfect" and "statistically anomalous" string of wins. 

He was fined more than $20,000 and given a two-year suspension from the platform, while MrBeast’s team confirmed they would be launching their own investigation into the matter. 

Which US Governor got caught insider trading?

As part of the same investigation, Kalshi found that Kyle Langford, a former California Governor hopeful, had placed bets on his own candidacy run. 

Kalshi fined Langford more than $2,000 and suspended him for five years – marking a much smaller fine but slightly longer ban than MrBeast’s editor. 

A Kalshi spokesperson said: “As a candidate in a race, you can (and probably should) follow and use Kalshi's market forecast, but you should not trade on it.”

While there could be some doubt as to whether Kaptur was fully aware of the severity of his actions, there is little grace that can be extended to Langford. Whether prediction markets are making it intentionally confusing for consumers to understand the regulations and methods used by the platform or not, it is the responsibility of politicians to stay ahead of such things – and use them responsibly.

Insider trading and war markets 

Over the last few months, there have been plenty of instances of insider trading on platforms such as Kalshi and Polymarket. There have no doubt been even more since we started writing this article – and there will almost certainly be more between the timing of publishing and many reading.

Some of the most egregious instances have been regarding war markets; in particular, anonymous accounts dropping large amounts of money hours before certain operations begin. 

The first scandal to hit the headlines was a $436,000 win on Polymarket after the Venezuelan leader Nicolás Maduro was captured by the US. 

The account made four bets on Venezuela within a month of opening, but remained anonymous due to the untraceable blockchain identifier of letters and numbers.

Then, more recently, at least 50 accounts placed substantial bets on Tuesday before a brief ceasefire was announced. One of the wallets placed $72,000 in bets and cashed out $200,000. 

This also begs the question: who would have information on these operations mere hours before they happen? While White House staff have been formally warned not to use insider information to place bets on prediction markets, it is impossible to enforce this if they remain anonymous.

Davis Ingle, White House Spokesman, told the BBC that: “Any implication that Administration officials are engaged in such activity without evidence is baseless and irresponsible reporting. The only special interest that will ever guide President Trump is the best interest of the American people.”

However, US Senator Andy Kim had a very different view on the matter: “Corruption and exploitation are thriving right now within the gaps and loopholes of prediction markets.

“This manipulation leaves the select few winning big, at the expense of working Americans.”

And this is not the first time that Polymarket has made headlines during the Iran War, as the platform also offered markets on the fate of downed US pilots, as well as when strikes would occur.

What can prediction markets do to prevent insider trading? 

Since the scandals started to make headlines, Kalshi has made a public attempt at preventing insider trading from occurring on its platform. In fact, the information about Kaptur and Langford comes directly from Kalshi itself. 

As for Polymarket, it would seem that, right now, is almost impossible to prevent insider trading from happening on the platform. Accounts can trade anonymously using cryptocurrency, meaning that the identity of bettors cannot be tracked after winning; nor can measures be put into place before the bets can be made. 

As long as Polymarket continues to uphold this KYC-less business model, prediction markets might always be synonymous with insider trading. After all, the platforms have created the perfect storm for this exact situation to happen. 

While Kaptur and Langford have risked their reputations by gambling on insider information, dozens of others are making plenty of money by simply picking the other company to – willingly or accidentally – commit serious federal crimes through.