CFTC, SEC, and Congress recalibrating federal oversight of prediction markets and crypto

US Federal Policy Reset On Prediction Markets

US Prediction Markets and Crypto Regulation in 2026: A Year of Strategic Recalibration and Global Shifts

The landscape of prediction markets and digital asset regulation in the United States has experienced a seismic transformation in 2026. Once regarded with suspicion, skepticism, and often outright prohibition, the sector is now firmly on the path toward mainstream legitimacy—bolstered by proactive regulatory reforms, legislative breakthroughs, technological innovations, and international enforcement efforts. This evolution signifies that prediction markets are transitioning from controversial experiments into trusted tools for forecasting, policymaking, and financial stability.

From Suppression to Strategic Support: The Regulatory Paradigm Shift

Historically, US regulatory agencies like the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) approached prediction markets with hostility. Concerns over illegal gambling, market manipulation, and fraud led to aggressive crackdowns, with platforms such as Polymarket and Kalshi forced offshore or shut down entirely. This stifled innovation and limited access for American users, creating a fragmented and somewhat clandestine ecosystem.

In 2026, this stance has fundamentally shifted:

CFTC’s Policy Reversal: The CFTC has abandoned outright bans, instead advocating for comprehensive regulatory frameworks that emphasize market integrity, consumer protection, and preventing regulatory arbitrage. A landmark move was the certification of Gemini Titan LLC as a Designated Contract Market (DCM)—a significant step integrating digital assets into traditional financial regulation. The agency now views prediction markets as valuable societal tools rather than mere gambling venues.
SEC’s Pragmatic Approach: Under Chair Paul Atkins, the SEC has adopted pragmatic, tailored regulations that aim to legitimize prediction markets. Their focus on investor transparency and market integrity has fostered greater institutional participation, embedding prediction markets more deeply into mainstream finance.
Legislative Momentum: The Crypto Market Structure Bill is approaching finalization, with industry insiders like Ripple CEO Brad Garlinghouse estimating an 80% probability of enactment by April. This legislation promises to clarify legal frameworks, expand institutional involvement, and stabilize markets. Meanwhile, the CLARITY Act, although stalled, continues to receive positive signals from policymakers, reflecting a growing consensus around comprehensive regulation and legal clarity.

Industry leaders and policymakers increasingly recognize prediction markets as crucial forecasting tools, complementing traditional models used across finance, security, and policymaking. Influential voices like Vitalik Buterin emphasize transparency and safeguards, cautioning against turning prediction platforms into gambling venues.

Enforcement Dynamics and International Fragmentation

While the US advances toward federal oversight, state-level legal disputes and international enforcement efforts reveal a fragmented global environment:

US Federal Enforcement: The CFTC actively asserts its jurisdictional authority, with ongoing enforcement actions to ensure market stability and consumer protection. However, state-level lawsuits, such as Massachusetts’ lawsuit against prediction platforms, exemplify jurisdictional conflicts that complicate uniform regulation.
International Responses:
- Europe: The Dutch regulator recently ordered Polymarket to cease operations within the Netherlands or face fines, citing strict gambling and financial laws.
- Middle East: Saudi Arabia (KSA) has penalized Polymarket for unauthorized gaming activity, demanding cessation of local user access.
- Asia: Despite China’s comprehensive bans on online prediction markets, platforms like Polymarket continue targeting Chinese users through localized offerings and hiring Mandarin-speaking staff, exemplifying regulatory arbitrage.

In response, the US government has intensified international cooperation to curb offshore prediction markets, emphasizing consumer protection and prevention of illicit activities across jurisdictions.

Market Integrity Incidents and Safeguards

As the sector matures, market integrity incidents have prompted refined safeguards:

Platform Enforcement: Notably, Kalshi took decisive action by banning a politician who bet on himself, highlighting the platform's commitment to preventing insider influence and maintaining fairness. Such actions reinforce industry standards aimed at deterring manipulation.
Debates Over Controversial Contracts: Contracts such as ‘death’ contracts—which speculate on individuals' mortality—have sparked regulatory debates. The CFTC has faced pressure to regulate or ban such contracts, emphasizing the need for clear standards to uphold market integrity.
AI and Surveillance Tools: The rise of AI-powered risk analytics and real-time surveillance tools—like ICE’s Polymarket Signals—enhances market transparency and systemic risk management. These tools are actively employed to detect manipulation, insider trading, and coordinated influence, safeguarding market credibility.

Market Activity, Infrastructure, and Technological Innovation

The regulatory environment has catalyzed technological progress and expanded institutional involvement:

High Market Volumes: Prediction markets remain highly active, with weekly transaction volumes exceeding $38 million. Polymarket alone has processed over 22.58 million transactions, reflecting robust user engagement.
Institutional Investment: Major firms like Jump Trading are substantially investing in platforms such as Polymarket and Kalshi, signaling mainstream acceptance.
Certification and Infrastructure: The CFTC’s certification of Gemini Titan LLC as a DCM marks a milestone, allowing digital assets to operate within regulated financial frameworks.
Technological Breakthroughs:
- The proliferation of AI-based risk analytics improves market oversight.
- Development of developer tools like Polymarket CLI enables automated analysis and AI-driven trading bots, broadening accessibility.
- Stablecoin settlement volumes involving USDC and USDU have surged to approximately $33 trillion, easing liquidity and efficient settlement.
Media and Data Integration: Many platforms embed probability data into media outlets, including Polymarket’s forecast summaries in Substack articles. Prediction markets are increasingly serving as core tools in macroeconomic and geopolitical forecasting.

Use Cases and Mainstreaming

Prediction markets are expanding beyond crypto assets to become integral forecasting tools:

They accurately predict key policy decisions, such as Federal Reserve rate moves, with Polymarket’s odds reflecting market consensus—96% odds favoring steady rates in recent surveys.
Media and entertainment sectors are integrating prediction markets for audience engagement and real-time decision-making:
- For example, "Who will win Survivor 50?" predictions on Polymarket reflect live betting odds after the premiere, illustrating market influence in entertainment.
Startups and funding: New projects like the TBD prediction market protocol recently secured $3 million in seed funding from CMT Digital and ParaFi, and Solana-based prediction markets have raised $3 million, showcasing blockchain diversification and venture capital confidence.
Mainstream financial platforms like Coinbase are expanding beyond crypto, integrating stock trading and prediction markets into their offerings, signaling broader institutional acceptance.

Risks, Safeguards, and the Road Ahead

Despite remarkable progress, risks persist:

Manipulation and Insider Trading: Recent cases, such as Kalshi’s ban on a politician betting on himself, highlight ongoing security challenges. AI-driven detection tools are vital for early identification of manipulative activity.
Controversial Contracts: Contracts like ‘death’ contracts continue to draw regulatory scrutiny, prompting the CFTC to clarify standards and enhance oversight.
Transparency and Auditing: Industry reports emphasize the necessity of robust oversight, transparent audit trails, and regulatory compliance to maintain trust.
Global Regulatory Divergence: Countries like the UK, France, and Belgium have imposed bans or restrictions, emphasizing geopolitical fragmentation. Regulatory arbitrage persists, as platforms target jurisdictions with lax laws—a challenge for US and international regulators seeking uniform standards.

Legislative efforts—notably the Crypto Market Structure Bill and ongoing CLARITY Act discussions—are crucial for shaping the future. If enacted, they are expected to foster trust, stability, and growth in prediction markets.

Current Status and Implications

2026 stands as a watershed year for prediction markets and crypto regulation in the US and globally. The strategic shift toward supportive regulation, technological advancements, and international enforcement cooperation are transforming prediction markets from niche experiments into trusted, resilient, and mainstream decision-making platforms.

While risks like manipulation, jurisdictional fragmentation, and transparency issues remain, technological safeguards, regulatory clarity, and cross-border collaboration are actively addressing these challenges. The sector’s momentum suggests that prediction markets will become integral to financial, policy, and geopolitical strategies—shaping how societies predict, prepare for, and respond to future uncertainties.

Recent Notable Developments

Kalshi banned a politician who bet on himself—highlighting the platform’s commitment to prevent insider influence. This action came nine months after the initial report on the incident, emphasizing industry self-regulation.
Prediction markets for entertainment: The "Who will win Survivor 50?" market on Polymarket reflects how real-time odds influence media narratives—a sign of mainstreaming.
Market reaction to macroeconomic events: For example, Bitcoin’s recent dip to around $62,000 led to sharply oscillating odds on platforms like Polymarket for Bitcoin reaching $150,000 within the year, exemplifying their role as real-time sentiment gauges.

In Summary

2026 has been a defining year for prediction markets and crypto regulation in the US. The convergence of clarified legal frameworks, cutting-edge technology, and international enforcement positions prediction markets as trustworthy, indispensable tools for forecasting, risk management, and policy development. Despite ongoing challenges, the sector’s trajectory points toward mainstream integration, fundamentally reshaping how markets, governments, and societies predict and prepare for the future.