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 the S&P 500 index futures, and the other is the real-time odds on "Who will be the next Chair of the Federal Reserve" on Polymarket/Kalshi. The dimensional wall of the financial world is being completely shattered by prediction markets.

Prediction markets, a field that has long walked the edge of finance and gaming, are being pulled onto the capital table. On one side is the frenzied influx of Wall Street and crypto funds, pushing its daily trading volume to exceed $700 million; on the other side are the intensive crackdowns and lockdowns launched by regulatory agencies in various countries within a month.

A silent war over "information pricing power" is fiercely unfolding against the backdrop of geopolitical and macro uncertainty.

From niche gaming to "institutional-level pricing tools"

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

Among them, the compliant platform Kalshi contributed about two-thirds of the share, while the decentralized platform Polymarket accounted for the remaining major portion. This marks the transformation of prediction markets from a marginalized narrative into an institutional-level track with significant liquidity.

The driving force behind this is clear and direct: The higher the macro 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 U.S. election results, specific policy implementation timings, and outbreaks of localized military conflicts, while prediction markets precisely fill this gap.

The shift in institutional perspective is particularly crucial—Polymarket has reached a data collaboration with Dow Jones, and its market data is directly integrated into top financial information terminals like The Wall Street Journal, which means 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 macro risks and direct speculation.

Regulatory pressure: Global "encirclement" actions

Alongside the market's rising heat is the vigilance and high pressure from global regulators. In the past month, lockdown actions against prediction markets (especially Polymarket) have erupted in multiple locations, forming a clear regulatory blockade:

• Europe has become the center of lockdowns: Regulatory agencies in Hungary, Portugal, Ukraine, and other countries have recently taken action, ordering the blocking of the Polymarket website or requiring its orderly exit under the pretext of "unlicensed gambling/illegal betting." France, Switzerland, Poland, and other countries had also taken similar measures earlier.
• Precise disassembly of U.S. regulation: Even in the relatively open 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 within the federal framework, state-level regulation can impose additional restrictions on specific categories.
• Insider trading triggers political sensitivity: Earlier this month, an extreme case appeared on Polymarket. A user bet only $32 on "Venezuelan President Maduro being ousted by the U.S." and made a profit of about $400,000 hours after the event occurred. This almost precise prediction raised significant concerns in the market about intelligence leaks and insider trading, also touching on the highest alert line of various governments regarding political prediction activities.

As of now, Polymarket has disclosed on its official website: The platform has implemented geographic restrictions in 33 countries/regions, mainly concentrated in jurisdictions with strict regulations on online gambling.

Core of the game: Financial tool or new type of gambling?

The intense game between the market and regulation is rooted in a fundamental legal classification divergence. From the perspective of supporters such as institutions and platforms, prediction markets are efficient information aggregation and risk pricing tools, belonging to the innovative category of financial derivatives, and should be regulated by financial regulatory bodies (such as the U.S. CFTC) in the form of "contracts."

However, for most regulatory agencies, especially in some European and Asian countries: Prediction markets, particularly contracts involving sports, politics, and entertainment events, due to their low thresholds, retail nature, and high entertainment value, are essentially closer to gambling. They may lead to addiction, money laundering, market manipulation, and social ethical issues (such as betting on disasters or political assassinations), and thus should fall under the gambling regulatory framework, subject to strict restrictions or even prohibition.

This misalignment in classification has led to the current fragmented global regulatory landscape. The same product may be a financial innovation experiment under the CFTC in the U.S., while in Hungary, it is directly defined as an illegal gambling website and technically blocked.

Outlook on the landscape

In the future, prediction markets are likely to evolve into a dual coexistence pattern.

Platforms represented by Kalshi will adhere to the path of financial regulation, strictly limiting the types of tradable events (for example, focusing on economic data and some non-sensitive policies), serving institutions and qualified investors. Their liquidity quality is high, but the categories are limited, becoming a relatively closed "information pricing special zone."

On the other hand, decentralized platforms represented by Polymarket will continue to operate in regions where regulation is not clearly blocked or where technical blocking is difficult. They offer a wider range of more grounded 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 signal to participants is very clear: although 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 directly participating in trading are rising sharply, and this risk is highly differentiated by jurisdiction.

Perhaps in the end, the prediction markets that can truly run long-term and be widely referenced by institutions will likely be a "regulatory-friendly + category-limited" version, rather than the ones that grow wildly.

This is not only the fate of prediction markets but may also be the rite of passage that all disruptive financial innovations must undergo when they touch the core of power and ethics.

*The content of this article is for reference only and does not constitute investment advice. The market has risks, and investment should be cautious.

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