Executive Summary
The prediction market industry crossed $44 billion in global volume in 2025 and hit $29.8 billion in April 2026 alone. The regulatory landscape is not keeping pace. It is fragmenting.
In the United States, the newly appointed CFTC chairman has signaled the most permissive federal stance in history — while 19 federal lawsuits, 38 state attorneys general, three Congressional bills, and federal prosecutors push in the opposite direction. In Europe, country-by-country bans are accumulating faster than any unified framework can form. Globally, no jurisdiction has created a bespoke prediction market regulatory regime.
This paper maps the actual state of regulation: what is approved, what is contested, what the major participants are saying, and where the fault lines are. The conclusion is uncomfortable: the industry is growing at 4x per year into a regulatory vacuum that is filling with litigation, not legislation.
Regulatory decisions made in the United States over the next 12–24 months will set the global precedent for how prediction markets are classified, governed, and ultimately adopted as institutional infrastructure. For financial professionals across the globe, where regulatory frameworks are still forming, understanding the U.S. fault lines now is not an academic exercise. The instruments being debated in U.S. courts and Congress are the same ones that will eventually appear on the desks of risk managers, compliance officers, and portfolio managers worldwide. This is the moment to get ahead of it.
1. The United States: Two Governments, One Industry
The U.S. regulatory picture is defined by a single, unresolved tension: the federal government and the states fundamentally disagree on what prediction markets are. The CFTC says they are derivatives. State gaming commissions say they are gambling. Both cannot be right — and 19 federal lawsuits are attempting to force a resolution.
1.1 The Federal Pivot
On January 29, 2026, CFTC Chairman Michael Selig delivered the clearest pro-prediction-market signal from a U.S. regulator. He withdrew a Biden-era proposed rule that would have banned political and sports event contracts, vacated a 2025 staff advisory, directed staff to draft new “clear standards” rulemaking, and announced the CFTC would reassess its participation in pending federal litigation. Selig called the prior approach a “frolic into merit regulation.”
1.2 The State Revolt
While the CFTC pivots toward permission, states are escalating enforcement. As of Q1 ’26, Kalshi faces 19+ federal lawsuits: 8 from state gaming commissions and tribal nations, 6 offensive suits filed by Kalshi itself, and 4+ class-action lawsuits alleging illegal gambling. In Maryland, the court held sports contracts are “indistinguishable” from wagering. In Massachusetts, a January 2026 injunction ordered Kalshi to geofence the state. The Supreme Court is expected to weigh in within 12–24 months.
1.3 The Congressional Front
Three bills are now in Congress. The Merkley-Klobuchar “End Prediction Market Corruption Act” would bar government officials from trading event contracts. The bipartisan Moore-Carbajal “Event Contract Enforcement Act” would force the CFTC to prohibit contracts on terrorism, assassination, war, gaming, or illegal activity. The Torres bill would bar federal employees from the same. Meanwhile, former OMB director Mick Mulvaney launched a 501(c)(4) called “Gambling Is Not Investing” pushing for state regulation. And on March 9, SDNY’s Jay Clayton said publicly: “My prosecutors are looking at what laws we can use.”
The Litigation Tracker
19+ federal lawsuits · Path to the Supreme Court
| Case | Year | Status | Notes |
|---|---|---|---|
| Kalshi v. CFTC (D.C.) | 2024 | WON | Election contracts are not 'gaming.' CFTC dropped its appeal in May 2025. The foundational federal precedent. |
| Blue Lake v. Kalshi (CA) | 2025 | ON APPEAL | Won at district court on federal preemption. The 9th Circuit appeal is the pivotal near-term ruling. |
| Kalshi v. Nevada GCB | 2025 | REVERSED | Injunction reversed Nov 2025. State can enforce gaming laws. |
| Kalshi v. New Jersey | 2025 | MIXED | District court sided with Kalshi. Ongoing. |
| Maryland v. Kalshi | 2025 | STATE WON | Sports contracts 'indistinguishable' from wagering. 38-state amicus. |
| Massachusetts v. Kalshi | 2025–2026 | INJUNCTION | Geofencing ordered. Kalshi's stay request denied. Polymarket filed a counter-suit on preemption February 10. |
| Polymarket v. Massachusetts | 2026 | FILED | Filed February 10, 2026. Claims federal preemption under the CEA. First Polymarket-led preemption suit. |
| Coinbase v. MI/IL/CT | 2025 | PENDING | Three concurrent state actions. Coinbase argues the CFTC is the sole proper regulator for these contracts. |
| Class Actions (4+) | 2025–2026 | PENDING | SDNY filing characterizes Kalshi as an "illegal unlicensed sports book." Investor and bettor classes both moving. |
| Tribal Challenges | 2025–2026 | ACTIVE | Multiple tribal nations asserting exclusive Class III gaming compacts preempt prediction market sports contracts. |
2. Europe: Death by a Thousand National Bans
The EU has no unified prediction market framework. Countries that have banned or restricted Polymarket as of February 2026: France, Belgium, Poland, Portugal, Hungary, Romania, and Ukraine. Countries where it remains accessible: Germany, Spain, Denmark, and Greece. The MiCA grandfathering period ends July 2026.
The irony is striking: the EU has built one of the world’s most comprehensive crypto regulatory frameworks (MiCA) but has zero framework for prediction markets specifically. Platforms fall between gambling and financial instruments with no single regulator in charge of the gap.
Eurex is reported to be weighing entry. If that happens it would be the first major European exchange in the space, and the first jurisdictional move toward treating event contracts as derivatives rather than gambling. Watch this one.
3. Rest of World: No Bespoke Frameworks Anywhere
Outside the U.S. and EU, no jurisdiction has created a dedicated prediction market regime. The UK classifies them under gambling. Singapore banned Polymarket in 2025. Taiwan investigated users for political betting. Australia prohibits access. Brazil is the most-discussed expansion market, with a draft framework circulating but no firm timeline.
Figure 1 — Global Regulatory Status by Region (as of February 2026)
The Underlying Curve
April set the sector record at $29.8 billion in combined notional volume. The week of March 2–8 set a single-week record of $5.35 billion across Kalshi and Polymarket. CME’s event contracts independently hit $100 million in their first eight weeks. The Federal Reserve published a paper on February 12 finding prediction market prices forecast Fed rate moves on par with, or better than, Bloomberg consensus, the New York Fed survey, and fed funds futures. When the Federal Reserve’s own research staff validates your data quality, the gambling-versus-derivatives debate is no longer the argument that matters.
4. Who Is Building What
The competitive landscape has transformed beyond recognition. Earlier this year at FIA Boca, Kalshi’s CEO sat as an equal on a headline panel with the heads of CME, Nasdaq, Deutsche Börse, and SGX. That image is the most accurate single representation of where this industry now sits.
Figure 2 — Major Market Participants
5. The Five Fault Lines
Where this fractures next. Five unresolved questions sit underneath every lawsuit, every state action, every Congressional bill.
5.1 Federal Preemption vs. State Police Power
Does the Commodity Exchange Act preempt state gambling laws? Circuit courts are now splitting. The Supreme Court will likely have to resolve it. This is the single most consequential question in the field.
5.2 Sports vs. Non-Sports
Ninety percent of Kalshi’s volume is sports. The regulatory heat is almost entirely on sports contracts. Economic and political contracts face far less opposition. A bifurcated regime is not the worst-case outcome, it may be the most likely one.
5.3 Insider trading and national security
The Iran strikes scandal changed the frame. A $515,000 winning bet placed seventy-one minutes before public news broke means prediction markets are no longer just a gambling debate. They are now discussed in the same sentence as classified-information vector risk.
5.4 The MiCA Squeeze in Europe
By July 2026, every crypto platform in the EU without a CASP license faces enforcement. MiCA does not regulate prediction markets directly. It constrains their crypto infrastructure. Same outcome by another name.
5.5 The Fed’s Validation
On February 12, the Federal Reserve published “Kalshi and the Rise of Macro Markets”, finding that prediction markets perform on par with or better than Bloomberg consensus, NY Fed surveys, and fed funds futures. They correctly identified the most likely Fed rate outcome on the eve of every FOMC meeting since 2022. The Federal Reserve’s own research staff validating prediction market data quality carries enormous weight. Every restrictive argument now has to contend with the question: if the data is this good, what exactly are we banning?
The industry is growing at four-times-per-year into a framework built for neither its scale nor its ambiguity. The CFTC’s January pivot is being countered by three bills, a new anti-PM lobbying group, and federal prosecutors. The Iran betting scandal has shifted the debate from gambling to national security. This is no longer about gambling versus derivatives. It is about whether prediction markets can exist without becoming a vector for profiting from classified information. That question will define 2026.
What They’re Actually Saying
Key quotes from regulators, industry, courts, and academics · Q3 2025–Mar 2026
“Prediction markets are a legitimate domain of speculation and information aggregation that our clients are demanding.”
Terrence Duffy, CME Group CEO · Q3 2025
“Americans deserve clarity, not 50 conflicting interpretations.”
Coalition for Prediction Markets · Dec 2025
“It is time for clear rules and a clear understanding that the CFTC supports lawful innovation in these markets.”
CFTC Chair Michael Selig · Jan 29, 2026
“Kalshi adopted its business model — relying on CFTC regulation to offer nationwide sports betting in contravention of state gaming laws — with eyes wide open.”
Judge Barry-Smith, MA Superior Court · Jan 2026
“It’s going to be something the Supreme Court, and maybe even Congress, will have to weigh in on.”
Prof. Koleman Strumpf, Wake Forest · Jan 2026
“Rapid growth in sports-related prediction markets poses legal, economic, and ethical risks.”
Chris Christie, American Gaming Association · Jan 2026
“Be careful about placing trades on prediction markets [which] do not have the same consumer protections as regulated platforms.”
NY AG Letitia James · Feb 2026
“Chairman Selig’s remarks mark the most definitive signal yet that prediction markets have moved to the forefront of the CFTC’s agenda.”
Sidley Austin, Law firm · Feb 2026
“My prosecutors are looking at what laws we can use.”
Jay Clayton · U.S. Attorney for SDNY · March 9, 2026
“Truth machines. They create accountability, transparency, and information.”
CFTC Chair Michael Selig · FIA Boca · March 10, 2026
Bottom Line
The prediction market industry is growing at 4x per year into a regulatory framework built for neither its scale nor its ambiguity. The CFTC’s January 2026 pivot under Chairman Selig is the most consequential signal the industry has received, but it is a signal, not a settlement. 19+ federal lawsuits. 38 states opposing. 33+ countries banned. Zero bespoke frameworks.
The industry is not waiting for regulatory clarity. It is forcing it, through growth, through litigation, and through the sheer political weight of billions of dollars in weekly volume. This is no longer about gambling versus derivatives. It is about whether prediction markets can exist without becoming a vector for profiting from classified information. That question will define 2026.
Two Months On: May 2026 Update
Two months on: Kalshi pulled ahead, Rothera filed, and June is the heaviest catalyst month of the year.
Three structural shifts have occurred since the original analysis. First, the volume race is no longer close — Kalshi hit a record $14.81 billion in April, holding 72% of combined notional volume, while Polymarket posted its first monthly decline in eight months. Second, the capital flowed in: Kalshi closed a $22 billion Series F on May 7, led by Coatue with Sequoia, a16z, IVP, Paradigm, and Morgan Stanley. Polymarket is reportedly raising at $15 billion. Third, investors moved from watching to building — Marex issued the first prediction market bond, Susquehanna became Kalshi’s first official market maker, and DRW stood up a dedicated Information Finance desk.
June is the densest catalyst month of the year: the FOMC decision on June 16–17, the NBA Finals, the FIFA World Cup opening June 11, and the expected CFTC rulemaking, all in the same window.
For the full interactive analysis including the June catalyst calendar and Top Ten Contracts for Capital Markets, explore the complete report.
