Gambling or Exchange? The Battle Over Prediction Markets Escalates in the US

The world of online gambling is currently undergoing a fundamental transformation that extends far beyond traditional casino games or sports betting. So-called prediction markets, where users can bet on the outcome of elections, court rulings, or economic events, have evolved into a significant economic force. In the United States, a fierce dispute has broken out between various states and the Trump administration over who has the authority to control and regulate these platforms. The central question is simple: is this a new form of investing or just gambling by another name?

These markets, led by providers such as Kalshi and Polymarket, allow participants to buy shares in an event that pay out a fixed amount if the predicted outcome occurs. While this sounds theoretically like hedging against risks, in practice it is often used as a highly speculative bet. While sports betting is already established and regulated in many parts of the world, prediction markets move in a legal gray area between financial market supervision and gambling authorities. The intensity of the conflict illustrates how much money is now at stake and that traditional definitions of betting are reaching their limits.

Numbers and facts

The dimensions are impressive. Prediction markets have developed into a multibillion-dollar industry, with platforms like Polymarket generating enormous turnover, particularly in the context of political events. Bloomberg Law estimates the growth at a volume that has now exceeded the billion-dollar mark. In the USA, around 30 states are currently struggling with other regulatory challenges, such as refunds under the Affordable Care Act, which shows how overburdened regional judicial authorities currently are. The conflict over jurisdiction is exacerbated by the differing approaches of the Trump administration and individual states.

"A number of states and the Trump administration are tussling over who gets to regulate an increasingly popular new sort of gambling." - Editorial, Texarkana Gazette

A major point of contention is the classification by the Commodity Futures Trading Commission (CFTC). While some providers seek licenses as exchanges, opponents argue that betting on the outcome of an election has no economic benefit and should therefore be prohibited as illegal gambling. The Kalshi platform recently achieved partial success in court, which could pave the way for legalized political betting in the USA, but resistance from regulatory authorities remains massive.

Background

The rise of these platforms is closely linked to technological development and the increasing acceptance of crypto assets. Polymarket, for example, uses blockchain technology, which enables global participation and makes it difficult to enforce national bans. This leads to a paradox: while licensed providers in strictly regulated markets like Germany are under close observation, prediction markets often operate globally and without the same hurdles in terms of player protection or identity verification. The Trump administration is pursuing a course that promises deregulation on the one hand, but wants to retain sovereignty over strategically important financial and betting markets on the other.

Critics warn of the dangers to the integrity of democratic processes. If millions can be bet on the outcome of an election, the incentive for manipulation or disinformation increases. Proponents, on the other hand, see the markets as the most precise instruments for predicting events, as participants use their own money and therefore have a high interest in correct analyses. This discrepancy between the benefit as a source of information and the risk as a source of addiction is at the heart of the current debate.

Why it matters for German players

For German players, the situation is clear but complicated. According to the State Treaty on Gambling 2021 (GlüStV 2021), only providers who possess a license from the Gemeinsame Glücksspielbehörde der Länder (GGL) are permitted in Germany. Prediction markets like Polymarket or Kalshi are currently not on the official GGL whitelist. This means that participating in such bets from Germany can be legally problematic. German players are subject to strict protective measures, such as the monthly deposit limit of 1,000 euros via the LUGAS system and the stake limit of 1 euro per spin for virtual slot machines.

Since prediction markets are often disguised as financial products, they try to circumvent these gambling regulations. In Germany, however, such a platform would most likely fall under the supervision of the GGL if the character of a bet is predominant. Players should therefore be careful: winnings from unlicensed providers can be confiscated, and there is no legal protection in the event of payout difficulties. Only providers on the GGL whitelist guarantee fair odds and compliance with German safety standards.

What it means for GGL-licensed casinos

Licensed German online casinos are watching the development with concern. While they have to pay high taxes and fulfill strict requirements for player protection, unregulated prediction markets are potentially siphoning off customers. This new competition often operates with significantly lower hurdles. For GGL casinos, this means they must communicate their strengths in terms of security and legality even more clearly. In the long term, pressure on the GGL could grow to create clear rules for betting on non-sporting events in Germany as well, in order to drain the black market and direct players into the legal channel.