Prediction markets have moved from niche financial instruments to the centre of policy debates across the US and beyond. The catalyst came in early 2025, when Kalshi launched sports event contracts under federally regulated derivatives frameworks.
According to Vixio, by positioning themselves as exchanges overseen at the federal level, they ignited a fierce, multi-state legal battle while simultaneously unveiling a potential route to nationwide scale without navigating 50 separate state betting regimes.
At the same time, Polymarket has gained international traction, drawing scrutiny from regulators, lawmakers and industry bodies across multiple jurisdictions.
Insights from an expert panel at a recent industry briefing — featuring Robert B. Stoddard, lead US tax partner at KPMG, Jeremy Kleiman, member at Saiber Law, and analysts Zachary Birnbaum and James Kilsby — highlight 2026 as a pivotal year. If 2025 marked the mainstream breakthrough of prediction markets, 2026 will likely define how governments respond.
The first policy front to watch is the expanding litigation landscape in the US. More than a dozen states have initiated action against platforms including Kalshi, Crypto.com, Robinhood and Polymarket. Federal cases are progressing through several circuits, including the 9th and 4th Circuits, alongside proceedings in Massachusetts.
Central questions include whether federal law pre-empts state gambling regulation, whether exchanges can self-certify event contracts, and whether sports outcomes qualify as lawful derivatives. Many observers believe the matter may ultimately reach the US Supreme Court, though a definitive ruling may not materialise until 2027 or later. In the interim, operators face a patchwork of injunctions, enforcement measures and potentially conflicting judicial outcomes.
Secondly, attention in Congress is building, albeit with a focus on safeguards rather than prohibition. Lawmakers — particularly Democrats — have raised concerns around market manipulation, youth access, responsible gambling and political betting. The NCAA has been vocal regarding student-athlete protections. Any legislative activity in 2026 is more likely to centre on integrity controls and consumer safeguards than an outright ban. However, with an election cycle underway, the pathway for comprehensive federal reform remains uncertain. The promotion of election betting by prediction market platforms could further intensify political scrutiny.
Internationally, regulatory attention is accelerating. Outside the US, concerns are less about sports betting circumvention and more about political integrity and AML/KYC risk. Polymarket has drawn particular scrutiny in Europe and Latin America. Romania and Portugal have already blocked certain political event contracts, and with elections scheduled in October, Brazil may become a new flashpoint. The global debate is expanding quickly, potentially shaping how prediction markets evolve as a cross-border product category.
Despite the turbulence, opportunities are significant. Operating under federal CFTC rules currently allows prediction markets to scale nationally without state-by-state licensing. This creates lower barriers to entry, particularly in large states such as California and Texas where sports betting remains illegal. Economically, the model benefits from the absence of state gambling taxes, lighter compliance requirements, self-certification of contracts and fewer advertising restrictions. Age thresholds, typically set at 18+, further broaden the addressable audience. For B2B suppliers across payments, identity verification, geolocation and data, prediction markets represent an emerging high-volume segment.
Product innovation is another attraction. Beyond traditional point spreads and moneylines, operators can offer political, entertainment, financial and weather-based contracts. The boundary-pushing potential raises questions for 2026 about how far platforms will go, and whether certain structures begin to resemble casino-style gaming formats.
Yet the risks are equally pronounced. Insider trading and market manipulation concerns extend beyond sports into politics and geopolitics. The availability of markets to 18–21-year-olds heightens fears around youth exposure. State regulators may retaliate against licensees perceived to be circumventing local laws, and international authorities remain wary of election-linked contracts and crypto-funded participation.
For operators and suppliers, prudence is essential. Applying sports-betting-grade controls — including age gating, responsible gambling tools and integrity monitoring — may help maintain credibility. Avoiding sports event contracts in states where a sports betting licence is held could reduce conflict. Preparing for a volatile legal environment and closely tracking global regulatory shifts will be critical as 2026 unfolds.
The coming year will determine whether prediction markets become a durable parallel channel to regulated betting — or face structural constraints that reshape their trajectory.
Copyright © 2026 RegTech Analyst
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