The rapidly growing business of prediction markets, which allows users to bet on the outcomes of future events, is facing significant regulatory scrutiny in the European Union. As of 2025, platforms like Polymarket and Kalshi have generated a staggering combined volume of over $37 billion (€31.5 billion) in wagers, marking a shift from a niche internet activity to a multibillion-dollar industry. Despite this growth, many EU countries have banned these platforms, citing concerns over their legality and potential for gambling.
Prediction markets enable participants to place bets on various events, from election results to corporate earnings. The price of these bets effectively serves as a real-time forecast of outcomes. For instance, if a contract is valued at $0.50, it implies that there is a 50% probability of that event occurring. This innovative approach to forecasting has garnered attention, particularly following the 2024 US presidential election and the 2025 German snap election, where these platforms provided predictions that rivaled or surpassed traditional polling methods.
Investment Surge and Industry Growth
The momentum in prediction markets has spurred substantial investment, underscoring their growing acceptance in the financial sector. This month, Kalshi secured a $1 billion (€850 million) Series E funding round, elevating its valuation to $11 billion (€9.4 billion). In a similar vein, Polymarket received a strategic investment of up to $2 billion (€1.7 billion) from the Intercontinental Exchange (ICE), which also became the distributor of its data to institutional investors globally.
The interest expressed by major financial institutions further validates the potential of prediction markets. Terrence Duffy, CEO of CME Group, emphasized during a third-quarter earnings call that prediction markets represent “a legitimate domain of speculation and information aggregation that our clients are demanding.” This signal of demand indicates a growing acceptance of alternative forecasting methods among mainstream financial players.
Regulatory Challenges and Concerns
Despite the enthusiastic reception from investors, the regulatory landscape in the EU remains fragmented. Many prediction markets have been forced to operate offshore due to stringent regulations. The French National Gaming Authority began a crackdown in late 2024, blocking Polymarket and ruling it as unlicensed gambling. Following this, Belgium, Poland, and Italy also issued bans. The Romanian National Gambling Office blacklisted Polymarket after it hosted wagers on the Romanian 2025 presidential election when the volume traded exceeded $600 million.
Critics argue that the rise of prediction markets could lead to the “gamification” of significant societal events, blurring the lines between informed speculation and gambling. The phenomenon known as “hyper-commodification” raises concerns that essential aspects of life could be subject to market forces, creating risks of insider trading and manipulation.
A notable controversy arose in early December, when a trader on Polymarket, known as “AlphaRaccoon,” won 22 out of 23 bets related to Google’s 2025 Year in Search rankings, netting over $1 million (€850,000) in just 24 hours. Allegations emerged that the trader may have had insider knowledge, prompting questions about the integrity of these markets.
In a separate instance, Brian Armstrong, CEO of Coinbase, highlighted the risks of outcome manipulation on prediction markets during a third-quarter earnings call. He paused the call to mention specific buzzwords that users had wagered on, causing the implied probability of those terms being mentioned to spike dramatically. While Armstrong described the incident as spontaneous, it illustrated potential vulnerabilities in prediction markets that regulators are keen to address.
As the landscape evolves, EU regulators face a critical decision: either embrace the burgeoning field of prediction markets or impose outright bans. With the Markets in Crypto-Assets (MiCA) regulation set to be fully implemented by July 2026, any prediction market utilizing blockchain technology will be subject to rigorous market abuse regulations.
The future of prediction markets in the EU remains uncertain. The industry is at a crossroads, balancing between innovation and regulation as it seeks to integrate into the broader financial ecosystem. As 2026 approaches, stakeholders will be watching closely to see how these developments unfold and whether the EU will adapt to this new era of forecasting or retreat from it entirely.
