On January 8, 2026, Beijing time, the prediction market platform Kalshi publicly supported the "2026 Public Integrity Financial Prediction Market Act," making "prohibiting insider trading in prediction markets" its core demand, attempting to fully transplant Wall Street's rules into this emerging field. On the opposite side of this compliant path is the offshore unregistered platform represented by Polymarket, which relies on speed and traffic for rapid growth, forming two distinctly different routes. Alongside the institutional game, there is a sharp rise and withdrawal of capital sentiment: in 2025, the total financing in the crypto sector was about $25 billion, with prediction markets becoming one of the biggest winners. However, at the beginning of 2026, the whale address 0x10a saw its floating profit of about $5.8 million reversed into a loss of about $1.87 million in just two days, with several well-known investors also suffering significant losses. Against the backdrop of legislative advancement, rising financing, and leveraged liquidations, a pressing question arises: can compliance reshape the rules of the prediction market and crypto capital, or is it merely a new shell for existing high-risk gambling?
Wall Street Rules Move into Prediction Markets: Kalshi's Legislative Gamble
Tarek Mansour deliberately emphasized that Kalshi has restricted insider trading on its prediction markets by referencing NYSE and NASDAQ-style rules, placing itself within the same discourse system as traditional regulated exchanges. This intentional alignment with Wall Street benchmarks serves as both an external compliance declaration and an internal business choice: in a regulatory gray area, whoever ties themselves to the strictest norms first has the opportunity to reap institutional benefits. Mansour's support for the "2026 Public Integrity Financial Prediction Market Act" is precisely aimed at leveraging legislation to establish a "red line" against insider trading, packaging prediction markets from speculative tools into "public integrity" infrastructure.
In this narrative shaping, the role of political allies is particularly crucial. Supporters like Ritchie Torres from the House of Representatives are attempting to write prediction markets into the political and regulatory context of the United States: by emphasizing their potential roles in information aggregation, election expectations, and policy feedback, they are building a "compliant, transparent, and regulatable" narrative framework for this emerging category. For Kalshi, securing such allies is not just about passing a single bill but about occupying a place in Washington's policy ecosystem, making "compliant prediction markets" tools that can be publicly embraced and referenced, rather than being tacitly regarded as gambling sites under regulatory shadows.
Choosing to actively embrace higher regulatory thresholds is a typical "trade of constraints for tickets." Kalshi bets that accepting stricter insider trading restrictions, KYC, and audit costs in the short term can yield two long-term returns: first, gaining a clear legal status to reduce the risk of being abruptly shut down; second, opening the door for traditional financial institutions and compliant capital, pushing prediction markets from niche toys for insiders to larger hedging and asset allocation tools. However, this gamble is not without shadows: current public information only indicates that the bill prohibits insider trading at a principle level, while specific technical terms, applicable scope, and enforcement mechanisms have yet to be disclosed, meaning the compliance path still carries significant uncertainty. At this moment, Kalshi resembles a party that has signed a contract with unclear details, betting on its ability to occupy the narrative and licensing high ground before the rules are finalized.
Polymarket's Gray Expansion and Offshore Pressure
In contrast to Kalshi's "establish rules before expanding" approach, offshore unregistered platforms like Polymarket have chosen a completely different growth strategy. They accelerate expansion between judicial boundaries and regulatory vacuums, accumulating users and transaction volume rapidly with looser upper standards, more aggressive market designs, and higher volatility. On this path, compliance is secondary to speed, and regulatory games resemble post-fact negotiations: first, establish the facts, then negotiate with regulators on "how to clean up the mess."
In public statements, Mansour has clearly attributed recent controversies surrounding prediction markets to the actions of "offshore, unregulated platforms," drawing a clear line of public opinion between Kalshi and platforms like Polymarket. The former strives to be packaged as "financial infrastructure bound by Wall Street rules," while the latter is implicitly indicated as a major source of market chaos and regulatory risk. This delineation is not only a brand distinction but also lays the groundwork for future regulatory games: once legislation is enacted, who can be included in the "compliance camp" and who will be categorized as "targets for suppression" will largely depend on the current assumptions of public opinion and narrative.
If U.S. legislation ultimately passes, the pressure on offshore prediction markets will likely first manifest in the accessibility for U.S. users, the stability of payment channels, and the compliance space for advertising. On one hand, more compliant institutions and payment service providers may tighten cooperation with unregistered platforms under the new regulations, forcing the latter to reach U.S. users through more concealed channels; on the other hand, social platforms and mainstream media, under dual pressures of law and public opinion, may also set new red lines for advertising and content flow related to offshore markets. However, specific pathways for how unregistered overseas platforms like Polymarket will be directly affected remain unclear in publicly available information, and whether scenarios such as cross-border enforcement, platform blocking, or intermediary "taking the blame" will occur lacks sufficient information support, making rash predictions only blur the true risk boundaries.
Financing Heat to Whale Losses: The Capital Scissors Gap in Prediction Markets
Returning to 2025, with approximately $25 billion in financing throughout the year in the crypto sector, prediction markets were undoubtedly one of the biggest winners. Whether through compliance routes or offshore expansion, project parties are telling a similar story: prediction markets can efficiently aggregate dispersed information, becoming leading indicators for financial markets and political ecosystems, thereby generating richer derivatives and hedging demands. Capital rapidly accumulates in the primary market, pushing valuations to high levels, and the prediction sector was once seen as the "next narrative hub."
However, entering early 2026, the feedback from the secondary market has been exceptionally cold. On-chain data shows that whale address 0x10a underwent a typical emotional reversal in a very short time: just two days ago, it still held about $5.8 million in floating profit, which quickly reversed to about $1.87 million in floating loss in the same market cycle, with many positions being liquidated amid severe volatility. Similar stories are not isolated; well-known speculators like James Wynn have also recorded significant withdrawals in recent fluctuations, becoming negative examples on social platforms. These cases point to a fact: regardless of how the narrative is elevated, prediction markets remain entangled with high leverage, fragile liquidity, and amplified emotions.
Ironically, while capital is competing for "future positions" in the prediction sector at high valuations in the primary market, it is being continuously bitten back by severe volatility and leveraged liquidations in the secondary market. The financing side sees a grand vision of "compliance, institutionalization, and infrastructure," while the trading side experiences the harsh reality of chasing highs, liquidation, and information asymmetry. This "scissors gap" effect, where one side tells a story while the other pays tuition, is tearing open a question: when prediction platforms are packaged as more mature financial products, does the risk education of underlying participants and the complexity of tools keep pace, or does it merely accelerate the accumulation of more complex risk structures under a more appealing narrative shell?
From Venezuelan Rumors to Liquidation Countdown: How Emotion Drives Leverage
In such a fragile environment, unverified grand narratives often become the last straw that breaks the camel's back. The claim that the "Venezuelan government secretly holds Bitcoin worth up to $60 billion" rapidly spread during this round of volatility, becoming one of the focal points of social discourse. However, based on currently available information, this claim is primarily based on speculation and second-hand clues, lacking transparent disclosure and reliable on-chain tracking evidence. Deribit co-founder Mauricio Di Bartolomeo publicly emphasized that there is currently no sufficiently credible on-chain evidence to support this claim, reminding the market to distinguish between data and rumors under emotional pressure.
Almost simultaneously with these sensational narratives, the timeline for regulatory rules and market structure is approaching. Leading trading platform Binance has announced it will lower the collateral ratios for multiple assets on January 12, 2026, and the market is generally concerned that this will trigger a new round of forced liquidations. Although specific adjustment parameters and asset lists have not been fully disclosed, in an environment where high leverage is prevalent and margin safety nets are continuously thinned, any reduction in collateral ratios could become the "final blow" to fragile positions. When regulatory uncertainty, platform rule adjustments, and high leverage resonate, unverified narratives like "sovereign states holding massive positions" are often rapidly amplified on social platforms and prediction markets, becoming catalysts for capital fleeing in panic or blindly increasing leverage.
From Venezuelan rumors to liquidation countdowns, what truly deserves vigilance is not the individual events themselves, but the cumulative effects they form in a highly sensitive market environment. The prices in prediction markets do not merely reflect cold probabilities; they also blend regulatory expectations, grand narratives, and leverage structures. When any link in this chain is distorted, the risk of liquidation is no longer an isolated event for individual traders but a collective manifestation of the entire market structure's fragility.
The Invisible Hand of Legislation: Who Will Profit in the New Order
In the context of accelerating compliance processes, the power structure of prediction markets is quietly being rearranged. If the compliant prediction markets represented by Kalshi ultimately receive policy endorsement, their most direct potential benefit is attracting traditional institutions and compliant capital that have previously been on the sidelines to gradually enter the market. For hedge funds, asset management companies, and even some corporate finance departments, a prediction platform operating within a legal framework and managing insider trading under rules similar to those of the NYSE and NASDAQ can be seen as a new hedging and information tool, helping them establish a more systematic position management mechanism regarding policy directions, macro events, and election outcomes. Compliance licenses and legislative protection make "taking institutional orders" and "taking retail orders" two completely different business tracks.
In the face of a potential new order, offshore platforms will need to reassess their risk-reward structures. To reduce the probability of direct conflict with U.S. regulations, they may be forced to tighten their openness to U.S. users, adjust KYC processes, or even maintain operations by migrating liquidity and matching core functions to safer jurisdictions. At the same time, some traffic may shift to more concealed levels: from public websites to semi-public communities, from fiat payments to on-chain paths, thus continuing the old high volatility and high leverage ecosystem outside the regulatory spotlight. These adjustments will further increase the information and liquidity barriers between compliance and offshore.
In this landscape, whales and professional speculators are likely to be among the first to actively adapt to the new order. They can engage in capital and information arbitrage between compliant and offshore markets: on one hand, utilizing the more transparent rules and stable liquidity of compliant markets to build positions based on medium- to long-term trends and macro events; on the other hand, leveraging more aggressive leverage and faster information responses in offshore markets to amplify bets on short-term volatility and regulatory "unexpected events." Regulatory clarity will not inherently dampen volatility; rather, it may give rise to a new market stratification—compliant markets, capable of accommodating institutions and low-risk preference capital, will form a "compliance premium"; offshore markets, bearing higher uncertainty and regulatory discounts, will exhibit a certain "offshore discount." The differences in price and liquidity become the most intuitive fissures in the new order.
Compliance Does Not Equal Mildness: The Starting Point for the Next Round of Games
Returning to the route differentiation proposed at the beginning of this article: Kalshi bets on legislation and compliance licenses, attempting to shape prediction markets into a new financial infrastructure within a regulatory framework; Polymarket, on the other hand, bets on borderless traffic and speed advantages, accelerating expansion in the regulatory vacuum that has not yet fully materialized. The potential return for the former is a larger institutional market and a more stable living space, while the corresponding risk is being bound by rules that have yet to be clearly defined, bearing the costs of compliance and the uncertainty of policy fluctuations; the potential return for the latter is higher capital efficiency and yield elasticity, while the corresponding risk is the possibility of being "named" by regulators at any time, being forced to restructure its business under judicial and infrastructural blockades. The wager between the two routes will not quickly determine a winner; it resembles a longer-term institutional experiment.
What is certain is that, with the advancement of legislation and the formation of compliance narratives, prediction markets are gradually moving from being marginal tools in the crypto world to playing a role in influencing capital flows and political agendas as "infrastructure." Whether it is election result expectations, policy games, or macroeconomic data, in the future, these may be more systematically reflected in the prices of prediction markets, thereby inversely influencing media reports, institutional positions, and even the strategic choices of politicians. As prediction markets transition from "betting on the future" to "influencing the future," their regulatory importance and systemic risk weight will also rise accordingly.
During this turning point, what investors need to be most vigilant about may not be the valuation of any single platform, but rather the tail risks under the resonance of unverified grand narratives and high leverage. From rumors of Venezuelan holdings to the two-day reversal of whales, and the countdown to Binance's collateral ratio adjustments, the truly fatal aspect has never been the individual events themselves, but the chain amplification of these events in a high-leverage structure and an environment of information asymmetry. The heat of financing can be infinitely elevated in press releases and roadshow PPTs, but the safety boundaries of margins are forever inscribed in the code of the liquidation engine.
Looking ahead to the next phase, as regulations gradually take shape and the landscape of compliant prediction markets and offshore markets becomes clearer, the interaction between prediction markets and broader crypto assets will also enter a new stage. On one hand, prediction market prices may become important "prior parameters" for macro events and regulatory expectations, referenced in pricing models for futures, options, and even on-chain derivatives; on the other hand, the volatility of the crypto spot and derivatives markets will continuously reshape the position structures and odds curves of prediction markets. The real game may have just begun, and the term "compliance" will not make this game milder; it merely introduces a new scoreboard and set of referee rules.
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