Between Bans and Soaring Prices: Global Prediction Markets Become a New Battleground for "Institutional-Level Information Warfare"

Author: Conflux

Today, on the trading screens of global macro hedge funds and on-chain crypto whales, two markets may be displayed side-by-side: one is S&P 500 index futures, and the other is the real-time odds on Polymarket/Kalshi for "Who will be the next Federal Reserve Chairman?" The dimensional barriers of the financial world are being completely broken down by the prediction market.

Prediction markets, a field that has long teetered on the edge of finance and gambling, are being dragged onto the capital table. On one hand, there's a frenzied influx of Wall Street and crypto funds, pushing daily trading volume to over $700 million; on the other hand, regulatory agencies in various countries have launched a series of crackdowns and lockdowns within a month.

A silent war over the "pricing power of information" is unfolding fiercely against the backdrop of overlapping geopolitical and macroeconomic uncertainties.

From 2025 to early 2026, the prediction market experienced exponential growth. Data shows that on January 12, 2026 alone, the global daily trading volume on major prediction market platforms reached approximately $701.7 million.

Of these, the US-based compliant platform Kalshi contributed approximately two-thirds of the share, while the decentralized platform Polymarket accounted for the majority of the remainder. This signifies that prediction markets have transformed from a marginal narrative into an institutional-grade sector with significant liquidity.

The driving force behind this is clear and direct: the higher the macroeconomic uncertainty, the more valuable the demand for pricing and risk management of "event outcomes. " Traditional financial derivatives struggle to cover "non-standard events" such as the outcome of the US election, the timing of specific policy announcements, and the outbreak of localized military conflicts, while prediction markets precisely fill this gap.

The shift in institutional perspective is particularly crucial – Polymarket has partnered with Dow Jones, integrating its market data directly into top financial information platforms like The Wall Street Journal. This signifies that prediction markets are becoming a formal decision-making reference for Wall Street traders and analysts. For crypto capital, prediction market contracts have become a new narrative engine for hedging macroeconomic risks and engaging in direct speculation.

Alongside the soaring market enthusiasm, global regulatory vigilance and pressure have intensified. Over the past month, crackdowns on prediction markets (especially Polymarkets) have erupted in multiple locations, forming a clear regulatory barrier.

• Europe has become the epicenter of the crackdown: Regulatory agencies in Hungary, Portugal, Ukraine, and other countries have recently taken action, ordering the blocking of the Polymarket website or demanding its orderly withdrawal on the grounds of "unlicensed gambling/illegal betting." France, Switzerland, Poland, and other countries had taken similar measures earlier.
• Precise Regulatory Breakdown in the US: Even in the relatively open US, compliant platform Kalshi has faced challenges. Just yesterday, a Massachusetts court issued a preliminary injunction prohibiting Kalshi from offering sports betting prediction contracts in the state, highlighting that even under a federal framework, state-level regulations can still impose additional restrictions on specific categories.
• Insider trading triggers political sensitivity: Earlier this month, an extreme case emerged on Polymarket. A user placed a bet of only $32 on "Venezuelan President Maduro being ousted by the United States" and profited approximately $400,000 within hours of the event. This near-accurate prediction sparked significant market concerns about intelligence leaks and insider trading, and also triggered the highest alert levels for political prediction activities by governments worldwide.

As of now, Polymarket has disclosed on its official website that the platform has implemented geo-blocking in 33 countries/regions, mainly concentrated in jurisdictions with strict regulations on online gambling.

The fierce battle between the market and regulators stems from a fundamental disagreement on the legal characterization of the issue. From the perspective of supporters such as institutions and platforms, prediction markets are efficient tools for information aggregation and risk pricing, falling under the innovative category of financial derivatives, and should be regulated by financial regulatory authorities (such as the US CFTC) in the form of "contracts."

However, for most regulatory bodies, especially in parts of Europe and Asia, prediction markets, particularly those involving sports, politics, and entertainment events, are inherently closer to gambling due to their low barriers to entry, retail participation, and high entertainment value. They can lead to addiction, money laundering, market manipulation, and social and ethical issues (such as betting on disasters or political assassinations), and therefore should be included in the gambling regulatory framework and strictly limited or even prohibited.

This misalignment in characterization has led to the current fragmented global regulatory landscape. The same product might be a financial innovation experiment in the US, a negotiation with the CFTC, while in Hungary it is directly defined as an illegal gambling website and technically blocked.

In the future, the prediction market is likely to evolve into a dual-track structure.

Platforms like Kalshi adhere to financial regulatory guidelines, strictly limiting the types of tradable events (such as focusing on economic data and certain non-sensitive policies), serving institutional and qualified investors. While offering high liquidity, the limited range of products creates a relatively closed "information pricing zone."

Decentralized platforms like Polymarket will continue to operate in regions where regulations are not explicitly blocking them or where technology cannot completely shield them. They offer a wider range of more practical event contracts (including elections, geopolitical conflicts, etc.), attracting opportunists seeking high volatility and rich narratives. This will become a "gray area" where regulatory risks and speculative gains coexist.

The message to participants is very clear: while the value of prediction markets is being rapidly recognized by institutions and will be deeply embedded in future macro trading and risk management models, the legal and compliance risks of direct participation in trading are rising sharply, and these risks vary significantly across different jurisdictions.

Perhaps in the end, the prediction markets that can truly run in the long run and be widely cited by institutions will be the "regulatory friendly + category-restricted" version, rather than the batch that grew wildly.

This is not only about predicting the fate of the market, but perhaps also a rite of passage that all disruptive financial innovations must undergo when they touch upon the core of power and ethics.

*The content of this article is for informational purposes only and does not constitute investment advice. Investing involves risk; please invest cautiously.