Prediction markets processed an estimated $23.7 billion in notional volume in March 2026, according to TRM Labs, a roughly 13-fold increase from $2 billion one year earlier. Monthly unique wallets nearly tripled in the six months to February 2026, reaching 840,000. Bernstein analyst Gautam Chhuga...
"I want to be crystal clear to anyone who engages in fraud, manipulation, or insider trading in any of our markets: we will find you, and the full force of the law will come to bear." — Michael Selig, Chairman, Commodity Futures Trading Commission
Prediction markets processed an estimated $23.7 billion in notional volume in March 2026, according to TRM Labs, a roughly 13-fold increase from $2 billion one year earlier. Monthly unique wallets nearly tripled in the six months to February 2026, reaching 840,000. Bernstein analyst Gautam Chhugani projects the sector will generate $240 billion in total volume this year, up 370% from 2025, and reach $1 trillion annually by 2030.
The growth has attracted federal enforcement attention at a pace that matches the volume curve. CFTC Enforcement Director David Miller, speaking at NYU School of Law on March 31, outlined five priority areas — insider trading, market manipulation, market abuse, retail fraud, and AML/KYC violations — and called it a "myth" that insider trading law does not apply to prediction markets. One day later, the CFTC and Department of Justice filed lawsuits against Arizona, Connecticut, and Illinois to block state gambling regulators from asserting jurisdiction over federally regulated event contracts. On April 16, Chairman Selig told the House Agriculture Committee the agency has "hundreds" of open investigations and is deploying Microsoft AI tools to compensate for a workforce that has shrunk more than 20% since 2024.
This report examines the collision between prediction market growth, federal enforcement infrastructure, and the legal disputes over who regulates a sector that Bernstein estimates could generate $10.8 billion in annual industry revenue by 2030.
The numbers define the scale of the regulatory problem. According to TRM Labs, prediction market monthly notional volume rose from $1.2 billion in early 2025 to over $20 billion in January 2026. March 2026 closed at $23.7 billion, the second-largest month on record. February 28 saw a single-day record of $425 million in traded volume.
Kalshi holds approximately 52.6% market share with $6 billion in trailing 30-day volume; Polymarket accounts for most of the remainder. Kalshi and Polymarket together generated roughly $60 billion in market volume year-to-date through mid-April, already exceeding the $51 billion traded across all prediction markets in the entirety of 2025, according to Bernstein.
The user base has shifted composition. TRM Labs data for January 1 through March 22, 2026, shows mid-frequency traders (11–1,000 trades) accounted for 44.7% of volume at $869 million sampled, while high-frequency participants (over 10,000 trades) contributed 35.2% at $774 million. First-time bettors represented less than 0.2% of volume, with a median trade size of $30 — a finding that suggests the market is increasingly dominated by repeat, sophisticated participants rather than casual retail users.
Category composition has also shifted. In October 2025, TRM Labs reported the top categories as U.S. politics ($150.4 million, 70,239 wallets), sports ($88.7 million, 54,993 wallets), macroeconomics/finance ($79.9 million, 41,187 wallets), and crypto ($52.6 million, 24,297 wallets). By March 2026, sports event contracts had grown to represent over 60% of total trading volume, according to Bernstein. On Kalshi specifically, 87% of March 2026 volume — $9.9 billion out of $11.39 billion — came from sports event contracts.
Geopolitical markets have also surged. A single contract asking "Will US strike Iran?" attracted $252.7 million in volume and 45,638 unique wallets in February 2026. A contract on Iran's Supreme Leader saw a 1,275x volume increase in a single 24-hour period.
The specific incident that brought prediction market insider trading to a congressional boil occurred in early April 2026. According to an Associated Press investigation cited by NPR on April 10, at least 50 brand-new Polymarket accounts placed substantial bets on a U.S.-Iran ceasefire in the hours before President Trump announced the deal.
One wallet, created on the morning of the announcement at approximately 10:00 a.m. EDT, placed roughly $72,000 in bets at an average price of 8.8 cents per contract, then cashed out for a $200,000 profit. Another wallet, which joined the platform on April 6 and traded exclusively on this event, realized gains of $125,500. Total volume on Iran ceasefire contracts reached $170 million, according to Invezz.
The trades followed a pattern. One Polymarket user made over $400,000 in January 2026 betting that Venezuelan President Nicolás Maduro would be removed, placing bets hours before U.S. forces captured him. Another user generated nearly $1 million since 2024 through correctly predicting U.S. and Israeli military actions against Iran, according to Fortune.
Harvard University researchers released a paper estimating that $143 million in profits have been made on Polymarket by individuals who potentially had insider information about events ranging from Taylor Swift's engagement to the awarding of the Nobel Peace Prize.
Rep. Ritchie Torres (D-NY) sent a letter to the CFTC demanding an investigation. Sen. Richard Blumenthal (D-CT) sent a separate letter to Polymarket demanding the company explain its continued allowance of trades on war and violence. At least two bills — one in the House, one in the Senate — are pending with bipartisan co-sponsorship.
CFTC Enforcement Director David Miller, speaking at NYU School of Law's Program on Corporate Compliance and Enforcement on March 31, 2026, laid out the legal basis for policing insider trading in prediction markets.
"There is a myth in the mainstream media and social media that insider trading law doesn't apply in the prediction markets. That is wrong," Miller stated. He cited two legal authorities: Rule 180.1, which incorporates the misappropriation theory of insider trading developed under securities laws, and Section 4c(a)(4) of the Commodity Exchange Act — colloquially known as the "Eddie Murphy rule" — which prohibits government employees from trading based on material nonpublic information.
Miller rejected the argument that insider trading is beneficial because it releases information to markets. "Some have suggested that insider trading is inevitable or beneficial because it gives people with confidential information a financial incentive to trade on it, thus releasing the information to the public," he said. "Not so."
The CFTC has already brought at least one enforcement action: Kalshi fined Artem Kaptur, a MrBeast employee, for using nonpublic information to bet on YouTube channel milestones, ordering the return of more than $5,000 in profits.
Miller also announced a forthcoming Staff Advisory on Cooperation, offering a "clear path to declination" for parties that self-report, cooperate fully, and remediate — a carrot to accompany the enforcement stick.
The question of who regulates prediction markets has produced a multi-front legal battle between federal regulators and state gambling authorities.
On April 2, 2026, the CFTC and the Department of Justice filed simultaneous lawsuits against Arizona, Connecticut, and Illinois, seeking declaratory and injunctive relief to prevent state gambling regulators from asserting jurisdiction over CFTC-registered derivatives clearing organizations. The federal government's position: the Commodity Exchange Act preempts state gambling laws when applied to exchanges regulated by the CFTC.
Court rulings have split. On April 7, the Third Circuit Court of Appeals ruled 2-1 in favor of Kalshi, finding the CFTC has exclusive jurisdiction under the CEA and that state gambling laws cannot override federal commodity law when applied to a CFTC-regulated exchange. This was the first federal appellate court to rule on the question.
However, a Suffolk County Superior Court judge in Massachusetts earlier ruled that Kalshi's sports event contracts are subject to state gaming laws and issued a preliminary injunction barring Kalshi from serving in-state users without a license. The judge rejected Kalshi's preemption argument as "overly broad."
On April 16, the Ninth Circuit heard oral arguments in a case involving Kalshi, Crypto.com, and Robinhood versus Nevada. A decision favoring Nevada's position would create a circuit split with the Third Circuit — two federal appellate courts reaching opposite conclusions on the same preemption question. According to legal analysts at Epstein Becker Green, a circuit split of this magnitude "almost invariably produces a Supreme Court petition."
The CFTC filed an amicus brief arguing that state gaming regulators are invading its exclusive jurisdiction by treating federally regulated swaps as illegal gambling. Chairman Selig separately wrote that the agency claims "exclusive regulatory authority" over prediction markets.
The enforcement push coincides with a significant reduction in CFTC resources. Full-time headcount dropped from 708 at the end of fiscal 2024 to approximately 543, a reduction exceeding 20%, according to agency records cited by CoinDesk. The enforcement division's budget request for the next fiscal year adds three staff to reach 108 — still 23% below the 140 enforcement personnel the division had in 2025.
Rep. Angie Craig (D-MN), the House Agriculture Committee's ranking Democrat, told Chairman Selig during the April 16 hearing that "the agency's workforce is stretched too thin," particularly given its role as "primary regulator of two of the fastest growing and most volatile markets" — referring to crypto derivatives and prediction markets. Democratic lawmakers also noted that Trump has not nominated anyone to fill vacancies on the five-seat commission, leaving Selig as the sole commissioner.
Selig's response: artificial intelligence. He told the committee the CFTC has authorized Microsoft 365 Copilot across its workforce and is building automated systems to flag fraud, manipulation, and insider trading in digital assets, event contracts, and commodity futures. "Tools such as AI are going to be very helpful in surveilling and bringing investigations," Selig testified. He characterized the agency as "running more efficiently and effectively" despite the headcount reduction.
The Digital Asset Market Clarity Act, still under Senate negotiation, would further expand the CFTC's mandate to include oversight of non-securities crypto trading, including bitcoin and ether spot markets — adding regulatory scope to an agency already facing capacity questions.
Kalshi and Polymarket spent a combined nearly $1 million on federal lobbying in 2025. Both companies employ Donald Trump Jr. as an advisor — a fact that drew scrutiny during the April 16 hearing. Democratic members of the House Agriculture Committee said his dual role "should absolutely be raising eyebrows" at the CFTC. Rep. Jim McGovern (D-MA) asked Selig directly whether the White House had asked the CFTC to drop any investigation into Polymarket. Selig deflected.
On March 23, 2026, both platforms implemented new self-regulatory measures: banning political candidates from trading on their own campaigns and blocking college and professional sports participants from betting on events in which they are involved.
The industry is also expanding its financial infrastructure. NYSE parent company ICE announced a $2 billion investment in Kalshi at an $8 billion valuation in October 2025. Robinhood's partnership, which connects 27 million brokerage accounts to prediction market contracts, has been a significant volume driver since March 2025.
Bernstein projects that if current take rates hold, industry revenue could expand from approximately $400 million in 2025 to $2.5 billion in 2026, reaching $10.8 billion by 2030. The analyst expects sports contracts, currently 60% of volume, to decline to 30% by 2030 as institutional markets develop around economics, business, and political contracts.
Prediction markets in 2026 present a regulatory paradox: a sector growing at triple-digit annual rates, supervised by an agency whose workforce has contracted by more than 20%. The CFTC is simultaneously asserting exclusive federal jurisdiction, suing three states, deploying AI surveillance, and managing an insider trading crisis centered on geopolitical events.
The legal architecture remains unresolved. A circuit split between the Third and Ninth Circuits would place the jurisdictional question before the Supreme Court, with implications for whether prediction markets are regulated as financial derivatives or as gambling. The outcome will determine not only the regulatory framework for Kalshi and Polymarket but also for the broader class of crypto-native event contracts that constitute a growing share of on-chain activity.
The economic value at stake is measurable. At Bernstein's projected $10.8 billion in annual industry revenue by 2030, the regulatory framework governing prediction markets will determine how that value is distributed among platforms, market makers, users, and the enforcement apparatus charged with policing them. The CFTC's bet — that 108 enforcement staff augmented by Microsoft AI can effectively surveil a $240 billion annual market — is itself a prediction with uncertain odds.