Prediction Markets Good for Players, Not for Investors 

It’s hard to come across any story relating to gambling in the US press that isn’t about prediction markets. Recent funding rounds have seen Polymarket and Kalshi raise investment at staggering valuations, amid endless claims that prediction markets are set to revolutionize betting as we know it. For players, there are undoubtedly many reasons to welcome their growth.

The current landscape for gamblers in prediction markets is comparable to the early days of the Betfair exchange. Seasoned professionals still get misty-eyed about the days when you could profit from simply laying almost anything, and the long-shot bias certainly seems yet to be overcome on Polymarket and Kalshi.

Some events that you might have gotten over 10% for with decent liquidity this year include Xi Jinping no longer being China’s premier, where you are essentially betting on him to be struck by lightning. Conor McGregor‘s chances of becoming the Irish president also peaked above 10% more than once, an event that, without caveat or exaggeration, had 0% chance of occurring. The market is currently immature and soft. The ability to hedge and arbitrage also has the second-order effect of making sportsbook prices more competitive. There are plenty of benefits for players and few drawbacks.

Prediction Markets Offer Nothing Exchanges Haven’t Before

Despite that, the advantages are pretty small potatoes and don’t seem to herald the overhaul of the industry as we know it. Betfair’s initial success did not see a mass transition to the exchange model, for the same reasons it can’t happen with prediction markets. Parlays aren’t possible, and there won’t be the liquidity for every prop market, factors that are much more important now since both have grown in popularity among recreational bettors.

The real problem for prediction markets, however, is the extremely shaky legal and regulatory ground on which the house has been built. Currently, it seems ideal – not classified as gambling, they have no need to pay for licenses or contribute shares of gross gambling revenue to local authorities. The tax situation becomes more complex for gamblers themselves, but also offers some potential advantages, particularly since the passing of the Big Beautiful Bill.

However, this is the case for the US only, and it applies only to the present. In other markets, such as the UK, gambling winnings aren’t taxed at all. Polymarket’s gray area status, however, means that it could easily be liable for user profits to be treated as capital gains in the UK, particularly in the current hostile environment towards gambling in the country.

This is one example, but there are countless others, particularly with the case of Kalshi’s wildly irresponsible launch into hundreds of territories at one fell swoop. It would be reckless in the extreme for a third-rate offshore casino to do this. For a company valued at $5 billion and heralded as the future of the industry, it’s unhinged.

As a result, it’s a near certainty that prediction markets will be attempting to argue that they are an investment vehicle in one country and a bookie in another. That strategy is doomed to fail – not only does it lack legal merit, but it also overlooks the balance of power involved.

Prediction Markets Have No Allies

Consider this: the new launches are certain to add to the colossal backlog of cases that prediction markets are already having to fight. But tax loopholes that focus on a very literal interpretation of the law simply never last, particularly in common law countries.

The growth of cryptocurrencies has led to online gambling becoming virtually impossible to police, and the unwritten contract between the industry and previously hostile territories has been that they are permitted to operate in return for juicy tax receipts for local governments struggling to cope with global demographic shifts.

Without those tax receipts, authorities lack a single reason to display anything other than the maximum level of hostility to prediction market operators. They will be permanently friendless among governments and regulators. The notion that a couple of favorable rulings will be able to hold back the tide is a complete fantasy.

For gamblers, prediction markets are a positive development, but they offer nothing that exchange markets haven’t previously provided. And yet, it would be wrong to say that Kalshi and Polymarket are offering us nothing new. The pairing of gambling markets with tech-industry hype, which declares every minor innovation a new paradigm, has seen growth at already unreasonable levels, built on ever-increasing levels of uncertainty.

That’s something we definitely haven’t seen before. And when that’s the case, you’d want a lot longer odds than Silicon Valley is laying on their chances of success.