Summary

  • The European Securities and Markets Authority (ESMA) highlighted concerns about insider trading and manipulation in prediction markets in its latest risk monitor report.
  • It noted that these platforms have struggled to gain popularity in the EU due to regulations that prevent selling event contracts to retail investors.
  • In contrast, U.S. regulators are focused on determining which contracts to permit rather than questioning their overall legality.

According to the European Securities and Markets Authority, prediction markets are "rife with inside trading," as stated in a risk monitor that dedicates an entire chapter to this sector.

ESMA cited three specific instances of insider trading: first, new wallets reportedly made $1.2 million just hours before a February strike on Iran. By May, Bubblemaps had identified nine accounts linked to $2.4 million in Iran-related bets that won 98% of the time. Additionally, a U.S. Army master sergeant faced charges for earning over $400,000 from Polymarket bets related to the capture of Venezuelan president Nicolás Maduro. In April, concerns about sensor tampering for weather contracts led Météo-France to lodge a police complaint.

ESMA noted that platform responses to these incidents tend to be "largely reactive," occurring only after profits have been made. In a different perspective on the Maduro case, Polymarket's chief legal officer, Neal Kumar, emphasized that the anonymity is an illusion, stating, "It's not anonymous—you will be found just like this guy."

Challenges in Europe

ESMA pointed out that prediction markets have not found a strong foothold in Europe, attributing this to regulatory frameworks rather than a lack of interest. Event contracts can be classified as financial instruments under MiFID II, fall under MiCA regulations, or be categorized as gambling by national laws. When they are deemed financial instruments, they are treated as derivatives, and national regulations, reflecting ESMA's intervention on binary options, prohibit selling them to retail investors.

Platforms such as Kalshi and Polymarket impose restrictions on users from certain EU countries, though coverage is inconsistent, leading ESMA to question why not all EU Member States are included. While both platforms block VPN usage, their effectiveness in practice is uncertain. Currently, only Malta is actively drafting regulations for these markets.

Myriad: Predict the next move for crude oil. Click here.

Since ESMA's data collection, volumes in prediction markets have surged. The report's data ends in November 2025 for Kalshi and January 2026 for Polymarket, showing quarterly volumes of $8.8 billion and $12 billion, respectively. By June, The Block reported a combined monthly volume of $44.8 billion, with Kalshi alone accounting for $31.5 billion as World Cup betting increased. ESMA noted that sports betting constitutes 73% of Kalshi's volume, while Polymarket's is divided among politics, sports, and cryptocurrency.

The regulator also referenced a Wall Street Journal report indicating that 67% of profits on Polymarket are earned by just 0.1% of accounts, alongside a Bloomberg analysis showing that most traders in these markets actually lose money.