U.S. Prediction Market Growth Faces Regulatory Challenges

The growth of the U.S. prediction market is reportedly built on an unstable foundation, primarily benefiting from regulatory arbitrage opportunities. According to Odaily, the lack of comprehensive regulations across various states allows users to engage in sports betting through prediction markets. Data from Dune Analytics indicates that by 2025, sports-related transactions will account for approximately 85% of Kalshi's trading volume and about 39% for Polymarket. Devin Ryan, Head of Financial Technology Research at Citizens Bank, suggests that the market requires robust integrity rules and an increase in non-sports market trading volumes. Currently, the market size for predicting January's CPI inflation data on Kalshi is under $1 million, and the core inflation prediction market is less than $30,000, which is insufficient liquidity to attract institutional participation. Furthermore, the U.S. prediction market is experiencing a 'fragile prosperity,' with growth heavily reliant on regulatory gray areas and substantial marketing investments. Should regulations tighten or user interest wane, growth could face significant pressure. There is also regulatory contention, as prediction markets often claim to be event contract trading under the Commodity Futures Trading Commission (CFTC), while state regulators adopt a more cautious stance. These legal disputes may ultimately require a Supreme Court decision.