Prediction markets are becoming a popular way to turn opinions into financial products, but growing concerns suggest they may also increase risks related to insider trading and credit exposure.
Platforms like Kalshi and Polymarket have expanded rapidly, generating billions of dollars in trading volume. Polymarket alone recorded over $1.2 billion in notional volume last week, according to Dune Analytics. Media outlet CNBC has also partnered with Kalshi to integrate prediction data into its programming and digital platforms.
Kalshi co-founder Tarek Mansour has said he aims to turn “any difference in opinion” into a tradable asset and believes prediction markets could eventually surpass the stock market in size.
However, regulators and analysts are raising alarms. Recent concerns involve insider manipulation, wash trading, and the potential for prediction platforms to worsen credit risks.
War map edit highlights insider manipulation risks
Prediction markets allow bets on everything from sports outcomes to geopolitical events. This flexibility, however, has created opportunities for manipulation.
In November, the Institute for the Study of War (ISW) reported that an unauthorized edit was made to its Russo-Ukrainian War map. The edit affected the depiction of Myrnohrad, a city under heavy conflict, and coincided with the settlement of a Polymarket bet on whether Russia would capture the area by a specific date.
The edit falsely suggested that Russia controlled a key intersection, triggering the market resolution. Minutes later, the change disappeared, and the ISW clarified that the update was not approved.
This incident raised concerns that insiders could manipulate publicly trusted data sources to influence prediction markets, potentially shaping public understanding of ongoing conflicts.
Other questionable cases have emerged. A trader known as AlphaRaccoo reportedly earned over $1 million by wagering on Google search rankings and won another $150,000 by predicting the exact release day of Google’s latest Gemini AI model. Critics claim this activity shows clear access to insider information.
Wash trading remains a major issue
A separate study from Columbia Business School found that wash trading accounted for 60% of Polymarket’s volume in December 2024. Although the percentage later fell, it still made up nearly 20% of volume by October 2025 and has averaged around 25%.
Professor Yash Kanoria noted that wash trading does not contribute liquidity or useful information, undermining the argument that prediction markets produce highly accurate or dynamic forecasts.
Regulation challenges intensify
Despite controversy, prediction platforms have gained regulatory traction. Polymarket recently received approval from the U.S. Commodity Futures Trading Commission (CFTC) to operate an intermediated trading platform. Its CEO, Shayne Coplan, said this reflects the platform’s maturity and transparency.
Kalshi is also regulated by the CFTC but faces lawsuits from several U.S. states—including Nevada, New Jersey, New York, Massachusetts, Maryland and Ohio—over whether prediction markets constitute gambling.
Beyond regulatory disputes, major banks are warning of credit risks. Analysts at Bank of America said that easy access and gamified interfaces could encourage impulsive betting, causing overextended credit and increased loan defaults. They warned that these behaviors could pressure credit quality and create new risks for lenders, who may need to adjust underwriting models.
The Connecticut Department of Consumer Protection has issued cease-and-desist orders to Robinhood, Kalshi and Crypto.com, saying these platforms lack proper licensing and expose consumers to significant financial and data risks.
Mansour’s vision of turning every opinion into a tradable asset may signal the next evolution of digital markets, but prediction platforms face mounting regulatory, ethical and financial challenges before that future becomes reality.
