Author: Conflux
Today, on the trading screens of global macro hedge funds and crypto whales on-chain, two markets might be displayed side by side: one is the S&P 500 futures, and the other is the real-time odds of "Who will be the next Federal Reserve Chair" on Polymarket/Kalshi. The dimensional boundaries of the financial world are being completely broken down by prediction markets.
The prediction market, a field long hovering at the edge of finance and gaming, is now being brought to the capital's poker table. On one side, Wall Street and crypto funds are flooding in, pushing daily trading volumes beyond the $700 million level. On the other side, regulatory agencies around the world are launching a dense wave of crackdowns and restrictions within just one month.
A silent war over the "right to price information" is intensifying against the backdrop of an era marked by geopolitical tensions and macroeconomic uncertainties.
From Niche Game to "Institutional-Level Pricing Tool"
From 2025 to early 2026, the predicted market size is expected to expand exponentially. Data shows that on just January 12, 2026, the global daily trading volume on major prediction market platforms reached approximately $701.7 million.
Among them, the U.S. compliance platform Kalshi contributed about two-thirds of the share, while the decentralized platform Polymarket accounted for the remaining major portion. This marks that prediction markets have evolved from a marginalized narrative into a significant institutional-grade market with notable liquidity.
The driving force behind this is clear and straightforward:The higher the macro-level uncertainty, the more valuable it becomes to price and manage risks associated with "event outcomes."Traditional financial derivatives have difficulty covering "non-standard events" such as the outcome of U.S. presidential elections, the timing of specific policy announcements, or the outbreak of localized military conflicts. Predictive markets, however, precisely fill this gap.
Among these, the shift in the institutional perspective is particularly crucial—Polymarket has reached a data partnership with Dow Jones, and its market data is now directly integrated into top financial information terminals such as The Wall Street Journal. This means that prediction markets are becoming an official reference for decision-making by Wall Street traders and analysts.For crypto capital, prediction market contracts have become a new narrative engine for hedging macro risks and engaging in direct speculation.
Regulatory Clampdown: Global "Crackdown" Campaign
Rising in tandem with the market's heat is the heightened vigilance and strict regulatory pressure globally. In the past month, crackdowns targeting prediction markets (especially Polymarket) have erupted in multiple regions, forming a clearly defined regulatory front:
- Europe becomes the center of the crackdown: Recently, regulatory authorities in Hungary, Portugal, and Ukraine have taken consecutive actions, ordering the blocking of the Polymarket website or demanding its orderly exit on the grounds of "unlicensed gambling/illegal betting." Countries such as France, Switzerland, and Poland had taken similar measures earlier.
- Precise regulatory fragmentation in the United States: Even in relatively open markets like the U.S., the 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 regulation can impose additional restrictions on specific categories.
- Insider trading triggers political sensitivity: At the beginning of this month, an extreme case emerged on Polymarket. A user bet only $32 on the event "Venezuelan President Maduro is ousted by the United States," and made a profit of about $400,000 within hours after the event occurred. This almost prophetic prediction has raised significant concerns in the market about potential leaks of classified information and insider trading, and has also touched the highest red lines of governments regarding political prediction activities.
As of now, Polymarket has disclosed on its official website:The platform has implemented geographic restrictions in 33 countries, mainly concentrated in jurisdictions with strict online gambling regulations.
The Core of Gambling: A Financial Instrument or a New Form of Gambling?
The intense competition between the market and regulators stems from a fundamental disagreement over legal classification. From the perspective of supporters such as institutions and platforms, prediction markets are efficient tools for aggregating information and pricing risks, falling within the category of innovative financial derivatives. These should be regulated by financial regulatory authorities (such as the U.S. CFTC) in the form of "contracts."
However, for most regulators, especially those in some European and Asian countries:Prediction markets, especially those involving contracts related to sports, politics, and entertainment events, are essentially closer to gambling due to their low entry barriers, retail-oriented nature, and high entertainment value.It may 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 within the gambling regulatory framework, subject to strict restrictions or even prohibition.
This qualitative misalignment has led to the current fragmented global regulatory landscape. The same product may be considered a financial innovation experiment under the CFTC in the United States, but in Hungary, it is directly classified as an illegal gambling website and technically blocked.
Outlook and Perspective
In the future, the prediction market is likely to evolve into a dual coexistence pattern.
Platforms like Kalshi will adhere to a financial regulatory framework, strictly limiting the types of tradable events (e.g., focusing on economic data and certain non-sensitive policies), and serving institutional and qualified investors. These platforms offer high liquidity but have limited product variety, creating a relatively closed "information pricing special zone."
Decentralized platforms like Polymarket will continue to operate in regions where regulations have not yet clearly banned them or where technological barriers are difficult to fully enforce. They offer a broader range of event-based contracts that are more closely tied to real-world happenings—including elections, geopolitical conflicts, and more—drawing in opportunists seeking high volatility and rich narratives. This space will become a "gray area" where regulatory risks coexist with speculative rewards.
The signal for participants is very clear: although the value of prediction markets is being rapidly recognized by institutions, they will be deeply integrated into future macro trading and risk management models.However, the legal and compliance risks directly involved in transactions are rising sharply, and these risks vary significantly across different jurisdictions.
Perhaps in the end, the prediction markets that can truly sustain long-term growth and be widely adopted by institutions are likely to be versions that are "regulation-friendly and category-limited," rather than those that have grown in a chaotic and uncontrolled manner.
This is not only about predicting the fate of the market, but perhaps also the 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 reference only and does not constitute investment advice. The market carries risks; investments should be made with caution.