Foreign media commentary suggests that prediction markets have recently been presented as tools that are closer to reflecting true probabilities, but this premise is now being challenged by issues of regulation and conflicts of interest. The article cites the latest risk report from the European Securities and Markets Authority, which indicates that an increasing number of incidents reveal problems with insider trading within prediction markets.
European regulators highlight risks
The report mentioned that the European Securities and Markets Authority clearly stated in its semi-annual risk report that it predicts an increase in insider trading in the market. Based on this, the article argues that such markets do not always reflect the objective probabilities of events as stably as their proponents claim.
The author distinguished between two scenarios: if the trading object is an external event such as weather, market participants usually cannot influence the outcome, and prices may be closer to a summary of information; however, if the bettors themselves can affect the progression of the event, market prices may deviate from true expectations.
Can place bets and also influence the outcome
The article takes Fed interest rate-related contracts as an example to argue that if individuals with access to the policy-making process were involved in trading, then prices would no longer be solely a result of market judgment; they could also be influenced by internal information or behavior. Through this, the author questions whether the market has sufficient independence when predicting policy, regulatory, or political events.
The article also reviews the trading incidents involving two former Federal Reserve officials that were exposed in 2021. According to previous reports by Fortune, the two individuals conducted a large amount of stock trading during the Federal Reserve's extensive market interventions in 2020, and one of them even held funds related to the Federal Reserve's bond purchasing activities. The article argues that this indicates that policy participants are not inherently isolated from market interests.
Polymarket's relationship with the Trump family has drawn attention
The article also points the finger at Polymarket. According to the article, after Trump won the 2024 election, the investment institutions 1789 Capital involved with Donald Trump Jr bought shares of Polymarket. The article also mentions that The New York Times reported that Polymarket was originally prohibited from accepting real-money bets from US residents, but later obtained operational permits from US federal regulators.
The author raises doubts based on this: when a presidential family invests in a certain platform, and that platform experiences more favorable regulatory progress during the same term of government, it is difficult for outsiders to ignore the perception of conflict of interest. The article states that Polymarket was valued at less than $1 billion when invested in 1789 Capital, and now its value has risen to $21 billion.
The focus of the dispute lies on the price discovery function.
The core argument of the article is that once major players emerge in the forecasting market, especially those who are capable of trading as well as influencing policy, regulation, or public opinion, smaller participants will pay more attention to the movements of these individuals rather than to the events themselves. As a result, market prices may not necessarily reflect the probability of events, but rather power and networks of relationships.
The author therefore believes that prediction market platforms such as Polymarket and Kalshi will face stricter regulatory scrutiny in the future, especially in terms of insider trading, conflicts of interest, and market fairness.
