Prediction Markets are a National Security Threat

Hours before an Israeli attack in Tehran killed Ayatollah Khamenei, an account on the prediction market Polymarket made over half a million dollars wagering that Iran’s Supreme Leader would vacate office before 3/31. That account, named “Magamyman,” was not the only one to cash in on the attacks.

Half a dozen Polymarket accounts made over $1.2M betting that the U.S. “strikes Iran by February 28, 2026.” Those accounts were allegedly paid for through cryptocurrency wallets that had previously not been funded prior to Feb. 27. Overall, prediction market users bet over $255M on markets related to the attacks in Iran on the prediction markets Kalshi and Polymarket alone.

This is not the first time that prediction market users have profited off international affairs. For example, the night that the U.S. military embarked to capture Nicolás Maduro, an unknown individual placed a bet on the prediction market Polymarket that Maduro would be out of power by the end of January. That individual bet over $32,000, and, within hours, made over $400,000.

These unknown individuals may have had a particularly lucky hunch about US involvement in Iran or Venezuela. However, both timing and volume of the trading that occurred raise another explanation — that these individuals may have had inside information about the impending military action.

Betting activity like this shines a light on a new problem facing national security: prediction markets. As both policy and international affairs experts, we urge Congress to take action to change that.

Prediction markets (like Kalshi, Polymarket and Predictit) can be thought about like stock markets. Individual “traders” make predictions in the form of investments that certain events might come to pass (“event contracts”). Prediction markets cover sports (an active source of litigation in Massachusetts), celebrity gossip (e.g., Kalshi has a market for “who will attend the Oscars?”), and more.

Prediction markets also offer trading on international affairs. For example, a Predictit market allows users to bet on whether the question “Will the US purchase Greenland in 2026?” (defined as a situation wherein “the United States, as a sovereign entity, publicly purchases the Island of Greenland in 2026”). As of this writing, “Yes” values were trading at $0.06 USD, and “Nos” at $0.94. This means that someone investing buying 100 shares on the “Yes” outcome would win a net profit of $94 USD ($100 - $6) if the US were to purchase Greenland before 12/31/26. Another prediction market, Polymarket, even offered trading on whether a nuclear weapon would be detonated this calendar year, which experts cited as a potential national security risk. Polymarket quietly pulled the market however, following pushback on social media.

The incentive for prediction market abuse by government officials is, in our view, obvious for at least two reasons. One issue concerns fairness in prediction market operations. Government actors may have more information than most people about domestic and international politics. Officials in the Department of War, for example, could have far more information about whether or not leaders will be deposed, the onset of international conflict, and more.

Second, and more problematically, we worry that government officials can use prediction markets for personal gain, at the expense of national security. People with the power to influence international affairs could alter their actions in order to make a profit on a prediction market. If, for example, a government official in the Department of War had been invested in the market predicting when President Maduro would be captured, or when the U.S. might strike Iran, they might have altered the timing of the operation in order to make a profit.

It is important to note that Polymarket had previously been banned from operating in the U.S. under President Biden, due to regulatory considerations. However, it was allowed to return under the second Trump administration. Their willingness to do so may result from the prospect of personal financial gain. President Trump’s son Donald Trump Jr. has been serving as an advisor to Polymarket since August 2025.

Our point is that the potential for abuse exists. Congress must act to regulate it.

Failing to regulate prediction markets could pose important risks to national security. For example, prediction markets may become sources of intelligence for adversaries. By signalling when military action might be preparing to take place, military personnel may be put in more danger than is operationally necessary. Additionally, nefarious actors may use prediction markets to sow geopolitical instability. If foreign adversaries want to stoke international conflict they could manipulate the prediction markets by strategically placing wagers on events in order to send misleading signals about what traders expect to happen. It is not difficult to imagine Polymarket’s betting market on nuclear detonation, for example, sowing tension, uncertainty and anxiety, particularly if people think there is inside knowledge being used in the driving of the markets. That could make diplomacy more difficult and lead to foreign policy crises.

Congress has long recognized the importance of placing strict limits on some prediction markets. For example, the 2012 STOCK Act requires members of Congress and senior staff to (a) avoid investing in stocks and securities for which they may have insider information, and (b) regularly disclose their holdings. The law aims to guard against both unfairness and market manipulation by government actors.

Today, Congress is considering legislation that would aim to regulate insider trading on prediction markets. For example, newly introduced legislation in the US House (HR 7004) would ban elected officials in the federal government, Congressional employees, and other political appointees from participating in prediction markets if they have nonpublic information relevant to that market. Presently, though, the legislation does not go as far as the STOCK Act in terms of requiring disclosure of betting activity.

Whatever form legislation might take, action is necessary to regulate the ability of government officials to place wagers on prediction markets. U.S. national security depends on it.