Prediction markets have moved from niche curiosity to one of the fastest-growing sectors in crypto, with monthly trading volumes climbing from roughly $28 billion to nearly $220 billion in a single year, according to industry data tracked by CoinGecko. So what exactly are prediction markets, how do they work, and why are they attracting both capital and serious regulatory scrutiny? This guide covers all the essentials, drawing on the major developments we've followed at SpazioCrypto as the sector has matured.
One framing note worth keeping in mind throughout: prediction markets sit in a legal grey zone between informational financial instrument and outright gambling, and how different jurisdictions treat them varies considerably.
What Prediction Markets Are, in Plain Terms
A prediction market is a platform where users buy and sell contracts whose value depends on the outcome of a real, future event: who wins an election, what a central bank decides on interest rates, the result of a sporting match, or even what a public figure will say in a speech. Each contract typically trades between zero and one dollar, and its price reflects the market's collective estimate of the probability that a given outcome actually occurs. The closer the price is to $1, the more participants believe that outcome is likely.
Unlike a traditional sportsbook, where you bet against a house that sets the odds, a prediction market lets users trade contracts with each other, much like a stock exchange. That market structure, rather than a betting-house structure, is the central argument made by platforms and their advocates for treating these instruments as something distinct from gambling. That debate, as we'll see, is far from settled.
The Two Leading Platforms
The sector is dominated by two names with fundamentally different approaches. Kalshi was built “inside the system” from day one: regulated by the U.S. Commodity Futures Trading Commission (CFTC), it operates in dollars, requires full user identification, and is designed specifically for the American market. Polymarket, by contrast, launched “outside the system”: crypto-native, built on a public blockchain, with a broader global reach but a more complex path to operating legally in the United States, as we covered in our piece on Polymarket's possible return to the U.S. market.
The two platforms have pursued different strategies as well. Kalshi has focused heavily on sports events, which account for the large majority of its trading volume. Polymarket remains stronger in politics, crypto, and global macro events.
Prediction Markets at a Glance
Key concepts. Source: SpazioCrypto
- What they are: markets where users trade contracts on the outcome of real-world events.
- The two models: Kalshi (CFTC-regulated, U.S.-based) and Polymarket (crypto-native, global).
- The grey zone: informational market or gambling? Rules differ sharply by jurisdiction.
Why Volumes Are Exploding
The sector's growth over the past year has been striking. As we reported when analyzing Kalshi's push toward a $40 billion valuation, prediction markets attracted significant capital during periods when other crypto assets were struggling, a sign that investors view these instruments as a distinct opportunity rather than a proxy for broader market sentiment. The real catalyst, though, arrived with major global events: during the 2026 FIFA World Cup, which we covered in depth in our analysis of the $50 billion volume surge tied to the tournament, trading hit record highs, with Kalshi securing an official partnership with FIFA.
Traditional finance and technology are paying close attention. Several major brokerage platforms have begun offering similar products, and at least one large social network developed its own dedicated prediction application after acquisition talks with a sector leader fell through. That kind of interest signals that the category is now considered strategically relevant well beyond the crypto industry.
Insider Trading and the Regulatory Challenge
Rapid growth has brought serious regulatory complications, and anyone approaching these markets should understand them clearly. The most sensitive issue is the use of non-public information. As we documented in our coverage of a former White House staffer sanctioned for trading on the content of presidential speeches before they were made public, prediction markets create a category of “privileged information” far broader than anything in traditional finance. The reason is structural: any real-world event can become a tradeable market, so the universe of potentially exploitable non-public knowledge expands enormously.
European regulators have also started paying closer attention. As we detailed in our analysis of the European Securities and Markets Authority (ESMA) warning, the pseudonymous nature of many participants makes it harder to detect insider trading and “wash trading”, the practice of executing fictitious transactions to artificially inflate reported volume. The regulatory line remains thin and contested. In several European countries, where gambling laws carry strict restrictions, the distinction between “legitimate informational market” and “unauthorized betting” is still an open fight between platforms and regulators.
What This Means for Investors Now
Prediction markets represent one of the most interesting and fastest-moving phenomena in the crypto space, capable of pulling in capital and media attention while increasingly attracting serious interest from traditional finance. They are, however, still relatively new instruments operating in a genuinely uncertain regulatory environment, and their risks should not be underestimated. Volume swings tied to single events can be extreme, and the insider-trading exposure is structurally wider than in conventional asset classes.
Understanding how these platforms work, what separates Kalshi from Polymarket, and what the regulatory picture looks like in your own jurisdiction is the necessary starting point, before any personal assessment of whether these instruments suit your risk appetite. Investors outside the United States should pay particular attention to how MiCA and national gambling laws interact with prediction market products offered to European users, a question that ESMA has flagged as unresolved and one that is likely to produce concrete regulatory decisions before the end of 2026.
Are Prediction Markets Legal?
The answer depends on the country and the specific platform. In the United States, Kalshi operates under direct CFTC oversight, giving it a clear legal status. Polymarket has faced restrictions on American users but has been pursuing a path back into the U.S. market. Across Europe, the interaction between prediction market contracts and national gambling regulations remains an active area of legal uncertainty, with some jurisdictions treating these products as financial instruments and others classifying them closer to betting. Anyone considering participation should verify the legal status of the chosen platform in their home country before committing capital.
This guide is informational only and does not constitute investment or gambling advice. Prediction markets carry real risks, including the possibility of losing the entire amount staked on a single event, and operate under regulatory frameworks that continue to evolve. Full due diligence on any platform is essential before any decision.
