Speculative bets on the potential removal of Iran’s Supreme Leader Ayatollah Ali Khamenei have raised concerns about the ethics and legality of prediction markets, such as Polymarket and Kalshi, following recent events. The betting activity, including wagers placed prior to the Israeli air strikes that resulted in Khamenei’s death in Tehran, has attracted attention from U.S. lawmakers calling for a ban on trading related to military actions that could benefit individuals with privileged information.
Reports indicate significant sums were staked on contracts linked to the timing of the attacks and the ousting of Khamenei, with analytics firm Bubblemaps highlighting profitable bets made shortly before the airstrikes. Additionally, rival platform Kalshi also offered markets on the potential removal of Khamenei.
Democratic Senator Chris Murphy criticized the legality of such activities, suggesting potential profiteering by individuals associated with the Trump administration. In response, a White House spokesperson emphasized that decisions are made in the best interest of the American people. Another Democrat, Rep. Mike Levin, expressed concerns about a bet placed on Polymarket just before the Iran strikes, calling for transparency and oversight in prediction markets.
Earlier in February, Democratic senators raised alarms about prediction markets breaching U.S. regulations and promoting conflicts by allowing bets on sensitive events. Both Polymarket and Kalshi defended their practices, with the former claiming to leverage collective intelligence for accurate forecasts and the latter emphasizing its prohibition on death-related wagers and insider trading.
And prediction markets, where people bet real money on real-world events are moving into the news itself. CNN and CNBC have struck deals with a company called Kalshi, bringing betting odds into their coverage of politics, the economy, and even war. Reporter Danny Funt explains why this alarms journalists and ethicists, the risks of conflicts of interest and insider trading, and what happens to public trust when news becomes something you can wager on.
Legal considerations
The surge in popularity of prediction markets, especially post the 2024 U.S. election, has raised legal questions regarding their operations. These markets provide users with tradeable contracts on various real-world events, with costs fluctuating based on probabilities and outcomes. However, U.S. laws prohibit bets against public interest, particularly those related to war or assassinations, and trading on non-public information may be deemed illegal.
Despite operating in a regulatory grey area, prediction markets have garnered significant attention, with a global trading volume of $47 billion last year. Traditional financial institutions are increasingly exploring involvement in these markets, with ventures like the New York Stock Exchange parent ICE investing in Polymarket. Efforts are underway to establish federal oversight to regulate prediction markets and ensure compliance with existing laws.