Prediction Markets Are The New Insider Trading

Traditional insider trading works like this: a corporate executive learns about some big news like a merger before the public announcement, buys stock, waits for the deal to close, and sells for a profit. The SEC prosecutes him under Rule 10b-5 and he goes to prison. The U.S. spent nearly a century building an enforcement apparatus to prevent exactly this kind of information exploitation, and while it does not catch everyone, the threat of prosecution keeps most insiders from acting on what they know.

Prediction markets have created something entirely different. Someone learns confidential information and places a bet on Polymarket or Kalshi, then collects their winnings when the outcome they already knew about is announced to the public. Nobody prosecutes them because there is no law to break, no regulator with clear jurisdiction, no enforcement mechanism even theoretically in place. This is insider gambling, the unregulated equivalent of insider trading for the modern era, and it has exploded into an industry processing tens of billions in annual volume while regulators remain frozen at the gate trying to figure out whose problem this actually is.

In December 2025, a trader using the handle "AlphaRaccoon" deposited $3 million into Polymarket on a Friday and walked away with $1.15 million in profit by Saturday after correctly predicting 22 of 23 outcomes on Google's "2025 Year in Search" rankings, according to blockchain records reviewed by multiple outlets. One bet made the situation obvious: he wagered $10,647 on singer d4vd to be the most-searched person at 0.2% odds, returning nearly $200,000 when it hit. Meta engineer Haeju Jeong publicly accused on social media: "This isn't a lucky streak. He's a Google insider milking Polymarket for quick money." When exposed, the trader simply changed usernames and kept operating.

Two months earlier, the Norwegian Nobel Institute launched an official investigation into Polymarket activity after bets on María Corina Machado winning the Nobel Peace Prize surged from 3.6% to over 70% approximately 11 hours before the announcement. Three accounts collectively profited around $90,000 on information that only 5 to 10 people in the world knew during those critical hours. Nobel Institute director Kristian Berg Harpviken told reporters: "It seems we have been prey to a criminal actor who wants to earn money on our information."

The UK election betting scandal extended this pattern to politics at the highest levels. Three days before then-Prime Minister Rishi Sunak called a July 4, 2024 election, his Parliamentary Private Secretary Craig Williams placed a £100 bet on that exact date at 5/1 odds. According to UK Gambling Commission filings, the investigation expanded to 15 people including Conservative Party officials and a Metropolitan Police officer from Sunak's close protection team. All now face criminal charges with potential two-year prison sentences under Section 42 of the Gambling Act 2005, a statute that has no American equivalent.

SEC Rule 10b-5 does not apply to prediction markets because there are no securities involved, and CFTC Rule 180.1 theoretically covers derivatives but the agency has never brought an insider trading case against a prediction market participant. "There is no insider trading on Polymarket," billionaire investor Bill Ackman stated publicly in September 2025, and legal experts confirmed this as technically accurate under current law.

But Polymarket CEO Shayne Coplan, the man running the largest prediction market on Earth, goes even further. He called insider trading on his own platform "effectively allowed, and perhaps even encouraged, as a way to show market validity" at the November 2025 Axios BFD Summit and described it in a CBS 60 Minutes interview as an "inevitability" with "a lot of benefits."

Regulated markets have surveillance systems that catch this within hours. State gaming commissions banned NBA player Jontay Porter for life after flagging suspicious betting on his injury status, and federal prosecutors sent a Coinbase product manager to prison for two years after he tipped his brother about token listings. Prediction markets have nothing comparable, and the CFTC operates with 31 staff during government shutdowns, fewer employees than the Rhode Island Lottery Commission.

And when insiders bet on confidential outcomes, the betting pattern itself becomes a signal that can reveal secrets before any official announcement. The UK election case showed this clearly: Williams placed his bet, the gambling operator's system flagged it, investigators cross-referenced betting records across multiple platforms, and they mapped exactly how the secret spread through Conservative Party networks with timestamps and transaction amounts.

Prediction markets now host nearly 100 active wagers on the Russia-Ukraine war with approximately $100 million at stake, along with markets on Supreme Court decisions, FDA drug approvals, and sealed indictments. Someone with advance knowledge of a military operation could place a bet, and even through privacy tools and anonymous wallets, the market movement itself might signal to adversaries that something is coming. The U.S. Army Military Intelligence Professional Bulletin published a 2025 article advocating that intelligence professionals monitor Polymarket for geopolitical signals, and if American intelligence agencies are watching these markets for leaks, every foreign intelligence service can do exactly the same thing.

Still, the prediction market industry has peak the interest of the institutions with Intercontinental Exchange, the parent company of the New York Stock Exchange, reportedly investing up to $2 billion in Polymarket at an $8 billion valuation while CNN, CNBC, and Yahoo Finance now cite prediction market odds as breaking news. Columbia Business School research found that only 12.7% of crypto wallets on Polymarket are profitable, which means the vast majority of participants are providing exit liquidity for the sophisticated traders, bots, market makers, and insiders who actually know what is going to happen.

The question is not whether this will eventually face a regulatory reckoning, because the documented cases have already made some form of intervention inevitable. The question is how much damage accumulates in the meantime: how many billions transfer from ordinary participants to insiders, how many confidential operations get exposed through betting patterns, how deeply these platforms entrench themselves in the financial and media ecosystem before anyone with authority decides to act.

What prediction markets have done is recreate insider trading without the social stigma or legal risk that once constrained it. Bucket shops operated for six decades before the Securities Exchange Act eliminated them, and Wall Street insider trading was standard practice until the scandals of the 1980s finally triggered real enforcement. The prediction market industry appears to be betting on that same slow timeline, hoping to grow so large and so politically connected that meaningful regulation and enforcement becomes impossible. Given what they have already built, that bet is looking pretty good.

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