Prediction markets may not be worth the risk

Our Maria Volkova wrote yesterday about the online gambling parlors – I'm sorry, prediction markets – such as Kalshi and Polymarket that have purportedly become such a big deal. The question is, should banks be looking at them as an opportunity, and if so what kind of opportunity?

There's no question that settlement markets have boosted their profile lately. I see ads for them all over the place – I saw one on 42nd Street here in New York City yesterday – people talk about them on social media, news stories mention their predictions as part of their coverage. The ads try to make it seem like gambling on all kinds of crazy things is the most normal thing you could do. Why waste your time on stocks when there's a prediction market for everything? Think it's gonna rain on Thursday? Place a bet! Want to make a little side-hustle money? Make a bet! Want to pay off your parking tickets? Place a bet! (I'm not making that last one up; that was an actual Kalshi ad I saw.)

And they seem to be growing strongly. Trading volume in 2025 rose to $64 billion from just $16 billion in 2024, according to research firm Certik. That is tiny compared to the broader derivatives markets, where trillions worth of contracts trade every day. But it's pretty competitive with plain old gaming and gambling markets. Commercial gaming revenue was $20 billion in the U.S. in the first quarter of 2026, for instance.

There are some real caveats to everything I just wrote. First, advertising's whole point is to manipulate you. Second, at least some of those online influencers were being paid by Polymarket. According to this Politico story, the company's chief marketing officer was paying influencers through a personal account, to keep it off the company's books. Third, those news outlets have formed partnerships with the prediction markets for their data. Fourth, and perhaps most importantly, it is not clear at all how much of the trading on these markets is legitimate and how much is manipulation. Researchers at Columbia Business School estimated that at various times as much as 60% of the volume was "wash trading," or people using multiple accounts just to create the illusion of real trading and volume. Certik's report also noted this problem. Wash trading is, for the record, illegal in regulated markets. So is insider trading, which seems to be a healthy practice and therefore is a risk to any bank whose employees may be on these sites.

So are prediction markets really the big deal they want you to think they are? Look, I am inherently against gambling. I grew up in New Jersey and have spent all of one afternoon in Atlantic City. And I don't plan to ever go back. It's just not for me. I don't like to risk my money. And it's not just about risk and money, two things I know are important to bankers. There's the question of exactly what public service these things are providing. Even the Commodities Futures Trading Commission, which has been trying to get prediction markets under its remit and which has taken what's been described as a "maximally laissez-faire" approach to them, is looking at whether Polymarket and the rest work in the public interest.

"The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation," said CFTC Chairman Michael S. Selig. "Either prediction markets responsibly develop within the CFTC's transparent, accountable, and time-tested framework, as our derivatives markets have done for decades, or they drift into the shadows offshore."

Whether these things end up in the shadows offshore or under the imprimatur of federal regulation, it's still worth asking exactly what service they are providing, and to whom.