The CFTC views informational advantages in prediction markets, like knowing about a secret Super Bowl ad, as a form of insider trading. The agency confirms it has legal authority under its anti-fraud rule, similar to the SEC's, to surveil markets and prosecute such cases, extending the doctrine beyond traditional corporate securities.

The explosive growth of prediction markets is driven by regulatory arbitrage. They capture immense value from the highly-regulated sports betting industry by operating under different, less restrictive rules for 'prediction markets,' despite significant product overlap.

CME is entering the retail prediction market by offering short-term, binary contracts on assets like gold and oil through FanDuel. These events last only 60 minutes and run multiple times a day, designed to be simple and accessible for a gaming-oriented audience while leveraging CME's deep liquidity.

Though functionally similar to users, prediction markets and sports betting operate under different regulatory frameworks. Prediction markets are lightly regulated by the federal government, while sports betting is heavily regulated state-by-state. This distinction allows prediction markets to legally operate in jurisdictions where sports betting is banned, fueling rapid growth.

Prediction markets have existed for decades. Their recent popularity surge isn't due to a technological breakthrough but to success in legalizing them. The primary obstacle was always legal prohibition, not a lack of product-market fit or superior technology.

Kalshi’s key strategic move was getting its prediction markets regulated by the federal CFTC, similar to commodities. This established federal preemption, meaning state-level laws don't apply. This allowed them to operate nationwide with a single regulator instead of seeking approval in 50 different states.

While gaining traction, prediction markets are on a collision course with regulators. Their expansion into domains resembling sports betting is unsustainable without government oversight and revenue sharing. The current "lawless" phase, where they claim not to be gambling, is unlikely to last, leading to a stalled 2026.

While traditional sports betting is restricted in many areas, prediction markets like Kalshi are often regulated as commodity markets. This arbitrage allows them to legally offer wagering on sports outcomes in most states, effectively operating as back-door sportsbooks and reaching a national audience.

By framing sports wagers as financial derivatives, prediction markets fall under federal CFTC jurisdiction. This allows them to operate with a lower age limit for trading (often 18) than state-level gambling laws (often 21), creating a de facto national standard that can circumvent local policy choices.