The Journal. - Insiders Are Cashing In on Prediction Markets

Episode Date: February 17, 2026

Prediction markets like Polymarket and Kalshi are booming, but they’re facing questions about users betting on information that is not publicly available, from Super Bowl performances to geopolitical crises. Advocates for the platforms say they are "truth machines" but critics say they’re a new vehicle for insider trading. WSJ’s Caitlin Ostroff explains how users are making fortunes, and why regulators are starting to take notice. Ryan Knutson hosts. Further Listening: - How ‘The Joker’ Rigged the Texas Lottery - How Parlays Became the Biggest Bet in SportsSign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Shortly before the Super Bowl, someone went on Polymarket, that site where you can bet on everything from sports to politics to the weather and placed 19 very specific bets. I sat down with our colleague Kieland Ostroff to take a look at that person's account. All the trades on polymarket are public, but users can be anonymous. I want you to just walk us through what we're looking at here. This is the guy who's the Super Bowl guy. Yeah, so this.

this page is the page of someone who bet very, very well on who would be performing at the Super Bowl halftime show. The person bet around $19,000 that Lady Gaga would have a surprise performance. They bet $3,000 that Cardi B would, too. They bet $10,000 that Travis Scott would not perform. And they bet $200 that the headliner, Bad Bunny, would open with the song Titi Me Pergonto. And 17 of those 19 bets were correct. The person won almost $17,000. Yeah, and scroll up, because I'm curious at one more thing.

So this shows that the first trades that they made were right before the Super Bowl. So they had not traded on anything before this. And if you scroll down, you'll notice that there's no other trades after the Super Bowl ones. So there's no other types of markets that they've traded on. So based on what you are seeing here on this. person's account, what can you deduce about what's going on here? So they are either a really, really lucky trader or they knew something ahead of time. As prediction markets explode in popularity, bets like these from people who appear to have

inside information are getting a lot of attention and raising a lot of eyebrows. People have the ability to put money down on things they couldn't historically, and it's way more accessible than it's ever been. And so you have people who can just take their inside information and make a ton of money off of it in a way that you've never really had before. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Tuesday, February 17th. Coming up on the show, prediction markets are taking off, and insiders are cashing in. The concept of prediction markets has existed for years. The two most popular ones today are Polymarket and Kalshi.

All polymarket trades are done in crypto, while you can trade on Kalshi in dollars. And we should say here that Polymarket has a data partnership with Dow Jones, the publisher of the Wall Street Journal. These days, my social media algorithm is full of videos about these two. companies. They're literally letting people bet on elections, natural disasters, even inflation. On Polymark, you can bet if this speech is going to go over or under 65 minutes. You have sports, you have CS. Will Yonis be traded? Anyone jailed over Epstein? Iranian Supreme Leader out. Will the U.S. acquired part of Greenland? All right. So I've got the Polymarket website up to its homepage here. And I'm seeing you can bet on politics, sports, crypto, you can bet on how many times Elon

will tweet in a given time period, what the next jobs report will show, who's going to win the most medals at the summer Olympics? There's a ton of stuff on here. Yeah, so Polly Market, especially in call shade to some degree, you can bet on everything. And so there's some markets that kind of make no sense and are kind of almost just there as a joke. Everyone's favorite market is the Jesus market, which you can bet whether Jesus Christ will return by the end of 2020. If he doesn't come by 2027, they're going to make money on that prediction. I don't know what the odds are right now, but the last time I looked, it was like a 95% chance that he won't return, which implied like a 5% chance that he will. The second coming of Christ aside, these prediction markets have actually been pretty accurate when it comes to elections and economic indicators.

So take the election, for example, the 2024 presidential election, the polls were very close between Donald Trump. and Kamala Harris, with the slight exception of on-Poly market, where the people who were putting down money were betting more than the polls that Donald Trump would win. And so that was kind of one of the major inflection points where you saw prediction market be more accurate than traditional polls. And the idea behind that is that if you have to put money on the line that you think this is going to be the outcome,

that's different than just telling a pollster who you're going to vote for because you don't have much of an incentive to be honest. Right, exactly. While useful for predicting the future, for some, they're also useful for making money. Bro made $1.9 million in a month on Polly Market. I made almost $500,000 in profit on prediction markets like Kalshi and Pauley Market in 2025. I have been seeing ads for Kalshi on my social media feeds that advertise it as a side-hub. as a way to pay your rent.

Hey man, what's the best side hustle? Oh, Cali, easy. Cali, what's that? Which I found very surprising because I'm like, isn't this ultimately a betting app? It is, and I've seen a couple of those two. And again, this is, it's betting. Like, unless you are trading with information

that isn't public and you are more certain of the outcome, it is a gamble. But it looks like there are people trading with information that isn't public. Like that person who made those Super Bowl bet And there are a lot of other examples. Like, someone last year made a bunch of successful bets about things going on inside Google. That account, named Alpha Raccoon, correctly guessed 22 out of the top 23 search terms of the year.

They also correctly bet on the exact date that a new Gemini AI model will be released. In the course of just a few days, the person ended up making nearly a million dollars on these and similar bets. Google didn't respond to a request for comment. Some people are profiting off even more consequential events. In June of last year, as tensions flared up between Israel and Iran, and the two countries started firing missiles at each other, someone on polymarket started placing bets about what was going to happen next. So there was one user who started making all of these very correct bets

on when strikes would start to happen, and when a ceasefire would be called. And so because of that, people online were quick to latch onto this and be like, this person is doing really, really well at this sensitive market. Like, whether Israel was Czech-Garvon is something not many people should know about, but they might know something that the rest of us don't. This account ended up making more than $150,000. Last week, Israeli authorities said they arrested several people,

including Army reservists in connection with these bets. A lawyer for one of the reservists said in a statement that there were defects in the indictment and improper conduct by the investigative authorities. The most recent one, major one, was the ousting of Nicholas Maduro in Venezuela, where, you know, I woke up after New Year's to see that all of a sudden this account had made $400,000

off of betting when Maduro would be ousted, and you could see the bets leading up to the strikes. You know, those happened at 2 a.m. And you could see bets being placed right up until about 11 p.m. the night before. And they were just, you know, doing more and more these chunks of bets that this would happen. Wow. And so those were kind of the ones that stuck out for us where we were like, we can't say for sure if it's people trading on non-public information,

but it looks really kind of... Right. It's hard to imagine. The odds of someone guessing that correctly and then doubling down in the three hours leading up to the actual moment. Yeah, like the odds of that are so small that you have to convince me that it's not insider trading at that point. What kind of questions is it raise if this can happen? I mean, I think the main question it raises is, you know, one of the things that I've really been thinking of is how often are people trading on non-public institutions? on these markets.

And, you know, how serious is that? And that sort of differs a bit depending on who you speak to. Because to some degree, these trades on non-public information are somewhat of a feature and not necessarily a quirk. The idea of prediction markets is that they present themselves as a vehicle to get more accurate information than you might be able to get from traditional sources. And so if you have a platform where anyone, without saying who they are, can say, I think this is going to happen and putting my money down on it,

it could incentivize people who are either smarter and find different information or know more about an event than the average person to kind of put that out there in a way that can be seen to everyone. Polymarket in particular has pushed this idea. The company's CEO, Shane Copeland, has described his plan. is a, quote, global truth machine. People going and having an edge to the market is a good thing. Here he is in an interview recently on 60 Minutes.

Obviously, you need to curate them, and you need to be really clear and stringent on where the line is drawn and, like, sort of ethics, and we spend a lot of time on that. But it's sort of an inevitability that this will happen, and there's a lot of benefits from it, and, you know, people will adapt. We spoke to their CEO, Shane Copland, and he was like, you know, the thing with insider trading is that you can see it online. If there's a suspected insider, like with the Maduro bets, like with the Israel Bet San Juan, the market can see what's happening and traders can say, hey, I think this is an insider, and maybe that dissuades people from putting money in that

market. So this type of betting is happening, but is it even legal? That's next. On Wall Street, But insider trading, the use of non-public information to make bets on the stock market, is a big no-no. It's a felony and can lead to fines or prison time. The reason it's illegal is, in large part, because it's not a fair marketplace if someone knows the outcome in advance. Technically, insider trading is also prohibited on prediction markets, which are regulated by the CFTC, the Commodity Futures Trading Commission.

But those CFTC rules were designed for things like wheat and copper. futures, and they don't readily carry over to prediction markets. You know, there's not really rules about, like, here's the exact parameters of everything you can try and list. There's not rules around, well, you know, what may be additional information do you need to collect because the risk of insider trading might be higher here than it is on other types of financial markets. Making matters more complicated is the fact that some state governments have tried to say that Cali and Polymarket need to follow state gambling rules, something the companies disagree

with. As a result, Calci and Polymarket have been operating in something of a gray area, and the two companies have been navigating that in different ways. For instance, a lot of them are out-there bets on Polymarket are actually not allowed on the U.S. version of its site. But Polymarket also has this wider international platform where you can bet on all of these geopolitical markets that aren't on the U.S. version. But it is fairly well known that it's not that hard to do that with a VPN. You just change the country where you appear to be located and you can make all sorts of bets. A spokeswoman for Pauly Market didn't comment on U.S. customers using VPNs to place bets.

The other platform, Kalshi, has taken a different approach. It's legal and regulated in the U.S. And CEO Tarek Mansour says insider trading is banned on the platform. Kalsi has always very much maintained that they want to be regulated, that they are trying to be the most secure, most in-line prediction market platform that people can trade on. And so Kalsi, when you sign up, you have to say who you are, they collect information on your name, where you live, other basic identifying information that helps clamp down on some. of that. Right. So they could potentially see, oh, these bets that you're making may actually be something that you work in or would have inside knowledge of. Right. In some cases. But that being said, it's still really hard to track this. I mean, if your best friend is, you know, the head of

marketing for the company handling the Super Bowl halftime show, like, they wouldn't have a way to know that. So there's the limits as to what they can actually easily figure out. in terms of who has insider information and who doesn't. Mansour also said that new customers go through a vetting process, and then once on the platform, there are surveillance teams that track trading behavior, among other efforts, to police for insider trading. Still, it can be hard to figure out what's insider trading and what isn't.

Recently, Mansour went on CNBC and was asked about a theoretical situation in which a dancer for Bad Bunny made bets about the Super Bowl halftime performance. It sounds like that would be considered insider trading, right? So that's a great question, and it is a little bit of philosophical question. What is information and what is insider information, right? If people can trade on Bad Bunny's Super Bowl halftime performance, then does Bad Bunny have an obligation to keep that information secret? If he can tell people what the lineup is and that he wants to divulge that beforehand,

that's fair game, and that's part of what the risk in the market is basically people are buying into. Have regulators said anything about looking into this? stuff. So prior to recently, we really hadn't seen much action from regulators on this idea of insider trading on prediction markets. That changed a little bit a couple weeks ago when Jay Clayton, who's the head of the SCNY, the Southern District of New York, Department of the DOJ, he said that, you know, prediction markets are something that they're very much looking at and that he thinks could be an area where there's enforcement going into the future. And so that's kind of the first inkling that we've seen, that this is going to be an area where regulators are starting to look more and more at.

Today, the head of the CFTC posted a video on X saying that his agency was the one to regulate prediction markets, not the states. They provide useful functions for society by allowing everyday Americans to hedge commercial risks, like increases in temperature and energy price spikes. they also serve as an important check on our news media and our information streams. Today, the CFTC is taking an important step to ensure that these markets have a place here in America and have the... A spokesperson for the CFTC said the agency cannot discuss enforcement measures and that investigations can take years to complete. So in the short term, at least, these kinds of prediction markets, these kinds of bets, and also the fact that insiders theoretically can make these trades, that's going to continue.

What are the potential risks of that? I mean, there's kind of twofold. So one is just if you are a normal trader and you're sitting there on the couch betting on, you know, whether the Seahawks win. Or the halftime show, let's say. Or the halftime show. If you are a normal person betting in those, that's not really a fair market for you. Right. Like, you're going up against people who have more information than you.

On the flip side of that, you have, you know, these markets that are more sensitive. Will Maduro be ousted? Will Israel strike Iran? Those are markets that do have implications for national security. And this is information that governments keep very closely held because of the potential to have operations go wrong. Right. And that puts lives in jeopardy and it, you know, can create all sorts of ripple effects. And so that type of information, basically becoming public, can be really dangerous.

Another risk of these types of prediction markets is that people who are the subject of one of these bets could potentially manipulate the outcome, kind of like an athlete betting on a game they're playing in. For instance, last October, people made bets on Polly Market that the CEO of Coinbase, Brian Armstrong, would say certain words during the company's earnings call, and he took notice. I was a little distracted because I was tracking the prediction market about what Coinbase will say on their next earnings call. And I just want to add here the words Bitcoin, Ethereum, blockchain, staking, and Web 3 to make sure we get those in before the end of the call. So in that instance, Brian Armstrong could just be playing around for fun. Or theoretically, he could have seen that bet, put a bunch of money down, and then decided to say, what do you bet on, basically?

Right, exactly. A coin-based spokeswoman said that the company has policies to, quote, prohibit employees, including executives, from participating in prediction markets on any related confidential activity involving the company. She also said that Armstrong's remarks were made in a, quote, lighthearted, offhand way. There's all of these different ways in which you can have potential manipulation of prediction markets, and those, again, the average person, can be really hard to see. if you're a normal person, it's rife with potential for manipulation and discrepancy, and it can be really hard to navigate.

So what do you expect is going to happen next with these platforms? That's a great question. Can we bet on it on Polly Market? Polymarket does not have markets for itself yet. Maybe they'll listen to this, Natham. By the way, Caitlin fact-checked this after we spoke, and there actually have been markets about polymarket itself. I am interested to see what happens with this idea of the risks of insider trading.

I'm interested to see whether polymarket winds up, you know, beefing up some of the protections that it has against insider trading or user identity information that's collected. But I think we're still very young in both of these. And what I've learned from covering crypto for so many years is that all of these kind of new platforms start as these very kind of immature products that figure out how they're going to deal

with regulation and manipulation and all of the stuff as they go. And so this, while being a new platform, isn't necessarily a new playbook and regulators are going to be looking at it more and more. What they decide to do is going to inform, you know, what protections we put on these platforms going forward.

if any. And so I think we're still at a really young age for this to try and figure out how this develops. One thing's for sure. These prediction markets aren't going away. In fact, more companies are launching them every day, like the investing app Robin Hood and the sports betting apps Draft King and Fanduel. And even President Trump's media company announced it's launching its own prediction market that will be available on truth social, called TruthPredict. That's all for today. Tuesday, February 17th. The journal is a co-production of Spotify and the Wall Street Journal. Additional reporting in this episode by Alexander Ossipovich and Dove Lieber.

Thanks for listening. See you tomorrow.