CFTC Chair Warns Prediction Markets Risk FTX-Style Collapse

• CFTC warns prediction markets may face FTX-like risks without clear U.S. regulation.
• Kalshi and Polymarket’s growth raises concerns as offshore trading exposes investors.
• Regulators and banks push for clearer rules as prediction markets attract major capital.

Prediction markets are growing fast, but without clear rules, they could face another FTX-style collapse, warned Commodity Futures Trading Commission Chair Michael Selig. In an interview with Farokh Sarmad, Dastan President and Co-Founder, Selig emphasized the need for U.S. oversight. 

“The failure of agencies to actually regulate, to do their job and set policy, is such a disservice to the builders and innovators and everyday Americans who want to access these products,” he said.

CFTC Warns Offshore Prediction Market Risks

Selig pointed to the rapid growth of platforms like Kalshi and Polymarket, which now handle more than $20 billion in trades each month. He warned that sending these markets offshore leaves investors exposed and unprotected.

 “We saw FTX, and we saw all these implosions of crypto firms. I’m concerned we’ll see the same with prediction markets if we keep pushing it offshore into the unregulated space,” Selig said. He added that U.S. exchanges need clear rules and strong protections for customers.

Rising Popularity Sparks Regulatory Scrutiny

Prediction markets have grown beyond political betting to cover sports, weather, and global events. Kalshi recently raised $1 billion, doubling its valuation to $22 billion. Regulators are now stepping up oversight. California Governor Gavin Newsom issued an executive order preventing public officials from using inside information to profit. “Public service should not be a get-rich-quick scheme,” he said.

The risks are not just domestic. Two Israelis allegedly used classified military information to place bets on Polymarket. They now face charges including bribery and obstruction. Prosecutors say neither held senior government roles, though one lawyer called his client “a highly regarded individual” who contributed to Israel’s security.

Banks Explore Entry Into Prediction Markets

Big banks are now looking at prediction markets, not just startups. JPMorgan CEO Jamie Dimon said the bank is exploring potential entry, but with strict limits. “I think for the most part, it’s more like gambling,” 

Dimon told CBS Evening News, adding that experts might treat some contracts as serious investments. Clear regulations will be crucial if major institutions move into this space.

Related: Australia Passes Crypto Law: AFSL Now Mandatory for All Exchanges