Speculations are rife regarding potential U.S. invasions of Venezuela and Colombia, along with questions about oil handovers. This surge in interest is fueled by recent events, such as the military action in Venezuela that led to the removal of President Nicolás Maduro, sparking a flurry of bets on prediction markets.
These prediction markets, which have gained significant traction in recent years, enable users to wager on a wide range of events. Platforms like Polymarket and Kalshi have become prominent players, offering users the opportunity to bet on outcomes ranging from movie nominations to geopolitical developments.
According to a report by Keyrock and Dune, the total value of bets on major prediction markets has soared from $100 million US in early 2024 to over $13 billion US monthly.
How Prediction Markets Operate
Typically, prediction markets feature binary bets, where users wager on yes/no or higher/lower outcomes. These markets aim to transform differences in opinion into tradable assets.
Polymarket and Kalshi are among the leading prediction market platforms, generating substantial volumes of transactions. While they differ from traditional sports betting sites by not acting as the “house,” they earn revenue through transaction fees rather than directly from users’ losses.
Financial Instruments or News Sources?
Prediction markets offer insights based on collective opinions, creating a “wisdom of crowds” effect. Major news outlets like CNN, CNBC, and Dow Jones have entered partnerships with Kalshi and Polymarket to integrate prediction market data into their coverage.
Regulation-wise, prediction markets are treated as financial products and fall under the purview of regulatory bodies like the Commodity Futures Trading Commission (CFTC) in the United States.
Concerns Over Insider Trading
A recent case involving a substantial bet on Maduro’s ousting ahead of the military operation has raised concerns about potential insider trading. U.S. Rep. Ritchie Torres plans to introduce legislation to prevent officials from leveraging privileged information for prediction market bets.
While measures against fraud and manipulation, including insider trading, exist, the effectiveness of enforcement remains uncertain due to the challenges posed by anonymous users and cryptocurrency transactions.
Regulatory Landscape in Canada
In Canada, the trading of binary options has been prohibited since 2017. Prediction market services not covered by this ban may be classified as securities or derivatives, subject to existing regulations governing such products.
Despite limited enforcement actions in Canada, the availability of prediction markets like Polymarket to Canadian users raises regulatory concerns, highlighting the need for more tailored regulations to safeguard global users.