Bet or Invest? Why the World is Cracking Down on Prediction Markets

Walk through Manhattan today and you will see Polymarket ads on cabs and Kalshi spots on TikTok. Both companies recently crossed multi-billion-dollar valuations, ICE put $2 billion into Polymarket, and Robinhood added event contracts to its app. By every commercial metric, prediction markets are winning.

By every regulatory metric, they are losing.

Over the last twelve months, more than 30 sovereign governments and roughly 10 U.S. state attorneys general have moved to restrict, ban, or criminalize prediction markets. Two federal appellate courts have issued contradictory rulings within ten days of each other. The Commodity Futures Trading Commission, the federal agency that nominally oversees these platforms, has now sued at least four U.S. state governments over the question of who has authority to regulate them.

If you have been told that prediction markets are the future of finance, the legal calendar is telling a different story.

The global picture: 33 countries and counting

Polymarket, the larger of the two major U.S.-affiliated platforms, currently restricts users in 33 countries, per its own published list. The reasons vary by jurisdiction.

Europe has been the most aggressive region. France blocks new trades and allows view-only access; Belgium has blacklisted the site outright; Germany, Italy, Poland, and the United Kingdom all sit on the restricted list. Portugal ordered Polymarket to shut down in January 2026, citing concerns about election-betting integrity. The Netherlands and Hungary took enforcement action in the same window. Spain became the most recent EU country to act, when its Directorate General for Gambling Regulation (DGOJ) announced enforcement against both Polymarket and Kalshi on May 26, 2026, one day before this issue went out.

Asia has moved through outright prohibition. Singapore, Thailand, Taiwan, and Poland are on "close-only" status, meaning existing positions can be closed but no new trades may be opened. Indonesia banned Polymarket in January 2026, classifying it as illegal online gambling and ruling that the use of cryptocurrency or blockchain does not change the underlying activity.

Conflict-affected jurisdictions have moved on ethical grounds. Ukraine banned Polymarket in December 2025 after users began wagering on outcomes of the ongoing Russian invasion.

The throughline across all of these actions: regulators are not buying the argument that prediction markets are something fundamentally different from gambling. They are treating "event contracts" as wagers, and applying existing gambling law.

The U.S. battle: a circuit split and a state revolt

Inside the United States, the fight has become more interesting because the federal and state governments now openly disagree.

Kalshi operates under the Commodity Futures Trading Commission as a designated contract market. Polymarket received its own CFTC clearance in late 2025. Both platforms argue that the Commodity Exchange Act ("CEA") preempts state gambling law: if the federal commodities regulator has approved a contract, no state may second-guess that approval.

State attorneys general, gaming commissions, and lotteries have taken the opposite view. The argument from the states is that gambling regulation has historically been a state police power, that prediction markets on sporting events are functionally indistinguishable from sportsbook wagers, and that the CFTC's hands-off posture does not amount to a license to operate.

The result is a patchwork:

The two appellate decisions are the most important development. On April 6, 2026, the Third Circuit (covering New Jersey, Pennsylvania, and Delaware) sided with Kalshi, holding that sports event contracts fall within the federal "swap" definition. Ten days later, on April 16, 2026, the Ninth Circuit (covering Nevada and most of the western United States) gave prediction markets what reporters at Bloomberg Law called a "cold reception" at oral argument. Most legal observers expect the Ninth Circuit to rule for Nevada, creating a clean circuit split that the Supreme Court will likely have to resolve.

The core question: is it investing, or is it betting?

The legal arguments are technical, but the underlying question is plain. When you buy a Kalshi contract on "Lakers win the title," are you investing or betting?

A bet is a zero-sum transaction. Money moves from one participant to another based on the outcome of an event that has no independent economic productivity. Nothing is built. No capital is allocated to a business. No employee is hired. The expected return for the average participant, after the house take, is negative.

An investment is a transfer of capital to a productive enterprise in exchange for a claim on its future cash flows or value. A startup uses your dollars to build a product. A public company uses your dollars to invest in growth. The expected return reflects the actual economic activity those dollars finance, and it can be positive across the entire base of investors at once.

The most recent academic data is unkind to the "prediction markets are investing" framing. A Polymarket study released earlier this year, covering 2.244 million accounts from November 2022 through March 2026, found that 68.8% of users lost money. Internal data from Kalshi reviewed by the Wall Street Journal in May 2026 showed losing users outnumbered winners by 2.9 to 1, or roughly 74%. These are casino loss rates, not investment outcomes.

Regulators in Lisbon, Jakarta, Madrid, Carson City, and Providence have all reached the same conclusion through different paths: a contract that pays out based on the outcome of a sports game, an election, or a celebrity divorce is a wager, regardless of whether the venue is licensed as a derivatives exchange.

What this means for you

The contrast EarlyBird draws is not rhetorical. There is a structural difference between owning a piece of a company that builds something and placing a bet on whether a quarterback completes a pass.

A Regulation Crowdfunding investment, the subject of our last issue, sends your dollars into the actual operations of an early-stage company. The company may fail, and most do, but the money is at work. A prediction market trade, by contrast, sends your dollars into a pool that pays out to the winning side of a wager.

Both can lose. Only one is building anything.

This is why we built EarlyBird around investing rather than wagering, and why we are watching the regulatory map closely. If the Supreme Court takes the circuit split and rules for the states, large parts of the current prediction market industry will need to find a new business model or shut down domestic operations. If it rules for federal preemption, the state-by-state patchwork tightens but the underlying question stays open: are these contracts investments or are they bets that happened to find a federal regulator first?

Our view has not changed. Bet money disappears. Invested money builds. The world's regulators are increasingly willing to enforce that line.

What to watch next

• Ninth Circuit ruling on Nevada (expected this summer)
• Supreme Court certiorari petition if the circuit split holds
• CFTC final rule on event contracts following the March 2026 ANPRM
• Additional state legislatures considering Minnesota-style felony statutes