Are Prediction Markets Gambling? Congress Just Introduced Five Bills That Say Yes.

In the span of sixteen days, from March 10 to March 26, Congress introduced five separate bills targeting prediction markets. Not one. Five. Bipartisan sponsors. Criminal charges filed in Arizona. A DOJ investigation opened in Manhattan. Nevada courts issuing restraining orders against Kalshi.

The question that seemed academic a year ago ("are prediction markets gambling?") now has a very specific answer from lawmakers: yes, and we are going to regulate them that way.

This is not a hypothetical regulatory risk. It is happening right now, in real time, across multiple jurisdictions simultaneously. If you trade on Polymarket or Kalshi, or if you are a crypto casino player watching from the sidelines, here is what is going on and what it means.

The Catalyst: $529 Million in War Bets

The regulatory response did not come out of nowhere. It started with Iran.

On February 28, 2026, the United States and Israel launched strikes against Iran, killing Supreme Leader Ayatollah Ali Khamenei and top military leaders. Polymarket had been running contracts tied to the timing of these strikes since December 2025. By the time the bombs fell, $529 million had been traded on those contracts.

That number alone would have drawn attention. But what turned attention into outrage was the trading activity in the hours before the strikes.

Six newly created Polymarket accounts bet that the attack would happen on February 28, purchasing shares at roughly $0.10 apiece. They won approximately $1.2 million. A CNN investigation later found that one trader had made nearly $1 million since 2024 from dozens of well-timed bets about Iran, winning 93% of five-figure wagers on unannounced military operations. Another account trading as "Magamyman" cleared more than $553,000 on bets about Iran and Khamenei just before the strike.

Senator Chris Murphy's response: "It's insane this is legal. People around Trump are profiting off war and death."

That was March. By the time you read this, Polymarket has already been forced to remove markets on a U.S. service member rescue mission (after Rep. Seth Moulton condemned it) and publicly apologized for letting users bet on downed American pilots.

The political environment for prediction markets shifted from cautiously optimistic to openly hostile in a matter of weeks.

The Five Bills: What Congress Actually Wants to Do

Five distinct pieces of legislation have been introduced, each targeting a different angle. Together, they represent the most coordinated congressional response to any crypto-adjacent product since the FTX collapse.

Bill 1: The DEATH BETS Act (March 10)

Sponsors: Sen. Adam Schiff (D-CA), Rep. Mike Levin (D-CA)

This one does what the name suggests. It permanently prohibits any CFTC-registered platform from listing contracts tied to war, terrorism, assassination, or an individual's death. The current framework is permissive: contracts are allowed unless the CFTC specifically intervenes. This bill flips that to an absolute prohibition for violence-related markets.

Schiff: "Betting on war and death creates an environment in which insiders can profit off of classified information, our national security is jeopardized, and violence is encouraged."

Bill 2: The BETS OFF Act (March 17)

Sponsors: Sen. Chris Murphy (D-CT), Rep. Greg Casar (D-TX), Rep. Gabe Amo (D-RI), co-sponsored by Sen. John Hickenlooper and Rep. Rashida Tlaib

Broader than the DEATH BETS Act. Bans wagering on government actions, terrorism, war, assassination, and events where an individual knows or controls the outcome. That last clause is interesting because it would also cover bets on the Super Bowl halftime show, Academy Awards, and similar events where insiders exist.

Bill 3: Prediction Markets Are Gambling Act (March 23)

Sponsors: Sen. John Curtis (R-UT), Sen. Adam Schiff (D-CA)

This is the headline bill, and the most consequential for everyday traders. It prohibits any CFTC-registered entity from listing a contract that "closely resembles a sports bet or casino-style game." Specifically bans any contract relating to any sporting event or athletic competition on regulated platforms.

The bipartisan sponsorship matters. Curtis is a Republican from Utah (a state with no legal gambling). Schiff is a Democrat from California. When a Utah Republican and a California Democrat agree on anything, it usually means there is genuine political will behind it.

Curtis's framing: "Too many young people in Utah are getting exposed to addictive sports betting and casino-style gaming contracts that belong under state control, not under federal regulators."

The numbers that prompted this bill: Super Bowl prediction market volume surpassed $1 billion. March Madness winner contracts exceeded $100 million in trading volume. These are not niche products anymore.

Kalshi's response: Banning sports on prediction markets would "just push this behavior offshore, where no regulation exists." This is the same argument crypto casinos make about KYC requirements, and it carries the same weight with legislators (very little).

Bill 4: Public Integrity in Financial Prediction Markets Act (March 26)

Sponsors: Sen. Curtis (R-UT), Sen. Slotkin (D-MI), Sen. Young (R-IN), Sen. Schiff (D-CA)

Targets government insiders specifically. Prohibits elected officials and government employees from using insider information to trade prediction market contracts. Covers the President, Vice President, Members of Congress, political appointees (including cabinet members), and agency employees.

Penalties: a fine of the greater of $500 or double the profit made. Any wager above $250 must be reported to an ethics office within 30 days.

Bill 5: STOP Corrupt Bets Act (March 26)

Sponsors: Sen. Jeff Merkley (D-OR), Sen. Elizabeth Warren (D-MA), Rep. Jamie Raskin (D-MD)

The broadest of all five. Would ban prediction market betting on elections, government actions across all branches, military actions, and sports. Also requires a GAO study on prediction markets, insider trading, and effects on children.

The bill's rationale: prior to 2024, event contracts on elections, sports, and government actions did not exist in the U.S. The 2026 midterms will be the first full election cycle that allows election gambling. This bill would close the window before it fully opens.

The State-Level War

Congress is not the only front. State regulators are moving independently, and some are moving aggressively.

Arizona filed criminal charges. On March 17, Attorney General Kris Mayes filed a 20-count criminal information against KalshiEX LLC: 4 counts of election wagering and 16 counts of unlawful betting. This is the first criminal prosecution ever brought against a CFTC-registered prediction market operator in the United States.

Nevada issued a restraining order. On March 20, Judge Jason Woodbury granted the Nevada Gaming Control Board's request to block Kalshi from offering sports, election, and entertainment contracts in the state. On April 4, he extended that to a full preliminary injunction.

Ohio classified prediction markets as sports betting. A court ruling that puts these contracts under the state gambling regulatory framework.

Connecticut and Illinois issued cease-and-desist letters to prediction market operators.

The CFTC's response? On April 2, the CFTC and DOJ sued Arizona, Connecticut, and Illinois, asserting that the federal government has "clear and longstanding exclusive jurisdiction" to regulate event contracts under the Commodity Exchange Act. The federal regulator is suing states for trying to regulate the same products that Congress is simultaneously trying to ban.

That contradiction is the single most important thing to understand about where prediction markets stand right now.

The DOJ Investigation

On March 30, CNN reported that federal prosecutors in Manhattan's Southern District of New York (the securities and commodities fraud unit) are exploring whether certain prediction market bets violated insider trading and other laws. The unit's chiefs met with Polymarket representatives to discuss how existing laws apply.

Focus areas: bets on the timing of the Iran strikes, the capture of Venezuelan President Maduro (one trader cleared $400,000+), and outcomes of popular television series (someone made $1.2 million correctly predicting Google's "Year in Search" results before they were released).

CFTC Enforcement Director David Miller underlined the message on March 31: "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."

He added that the Commission will use prosecutorial discretion and focus on those who "tip or trade with misappropriated information," not trivial cases. But the message is clear: if you trade on prediction markets using information the public does not have, you are exposed.

The Scale of What is at Stake

The numbers explain the urgency:

This is not a niche crypto product anymore. MLB signed a $300 million partnership with Polymarket on March 19. DraftKings entered the space and is operating in 38 states. The industry went from $500 million in total volume in 2022 to $63.5 billion in 2025. That trajectory, combined with the Iran insider trading scandal, made congressional action inevitable.

What This Means for Prediction Market Traders

If you currently trade on Polymarket or Kalshi, here is the practical picture:

Short term (next 3 to 6 months): Neither platform is shutting down tomorrow. The CFTC under Chairman Michael Selig is actively defending prediction markets against state regulators and has signaled a "permissive, not paternalistic" approach. Any legislation needs to pass both chambers and be signed by President Trump, whose appointed CFTC chairman supports the industry.

Medium term (6 to 18 months): The risk is real and increasing. Five bills in sixteen days is not posturing. The bipartisan nature of the Prediction Markets Are Gambling Act (Republican Curtis and Democrat Schiff) suggests this is not a partisan wedge issue. If the Iran insider trading investigation produces charges, the political momentum will accelerate.

Specific categories at risk:

• Sports contracts: The most immediate target. The Prediction Markets Are Gambling Act specifically bans sports-related event contracts. Nevada has already blocked them. If this becomes law, Super Bowl and March Madness betting on Kalshi disappears.
• War and violence contracts: The DEATH BETS Act and BETS OFF Act target these specifically. Polymarket has already started self-censoring (removing the pilot rescue market, apologizing for the downed pilots market). The writing is on the wall.
• Election contracts: The STOP Corrupt Bets Act would ban election betting. Arizona is filing criminal charges over election contracts specifically. The 2026 midterms are the first full election cycle with legal prediction markets; they may also be the last.
• Pure economics/weather markets: Likely safe. No bill targets contracts on inflation data, interest rate decisions, or weather events. These have clear hedging utility that satisfies the Commodity Exchange Act's requirements.

What to do right now:

1. If you have open positions on sports or election contracts, understand that the regulatory environment could shift before resolution.
2. Do not assume that because the CFTC supports you today, it will support you next year. CFTC chairmen change with administrations.
3. If you are on Polymarket's international (crypto) exchange, you are less directly affected by US legislation, but the platform's reputation and operational stability are at risk.
4. Read the Polymarket vs Kalshi comparison for the current differences in regulatory exposure between the two platforms. Kalshi's CFTC registration gives it more legal standing but also makes it a bigger target for state enforcement.

What This Means for Crypto Casino Players

If you are a crypto casino player, not a prediction market trader, you might wonder why this matters. Two reasons.

First: the precedent. If Congress successfully classifies prediction markets as gambling, it establishes a framework for how lawmakers think about crypto-adjacent financial products. The argument that "this is a financial instrument, not a bet" gets weaker every time a court or a bill says otherwise. Crypto casinos already operate in legal gray areas. Prediction markets getting reclassified as gambling does not help.

Second: the user migration. If sports and election contracts are banned on regulated platforms, those traders need somewhere to go. Some will move to offshore, unregulated prediction markets. Some will simply shift their risk appetite to crypto casinos, which already offer a known, transparent house edge without the regulatory uncertainty.

As I covered in the prediction markets vs crypto casinos comparison, the fundamental difference is this: at a crypto casino, you know exactly what the house edge is (1% on crash, 1.06% on banker baccarat, etc.) and it does not change. On a prediction market, your edge depends on whether you are smarter than everyone else in the market, and 87% of Polymarket wallets lose money.

If you are going to risk money on uncertain outcomes, at least know your cost of play upfront.

The Insider Trading Problem Is Not Going Away

The core issue driving this regulatory wave is not that prediction markets exist. It is that they create financial incentives around information asymmetry in ways that traditional gambling does not.

When you bet on a roulette spin, nobody has insider information about where the ball will land. When you bet on whether the U.S. will strike Iran this week, people in the Situation Room know the answer. When you bet on March Madness, athletes and referees can influence the outcome.

This is fundamentally different from casino gambling, and it is the reason the "prediction markets are not gambling" defense is collapsing. Congress is not concerned that people are betting. They are concerned that people with privileged information are profiting at the expense of those without it.

Kalshi has referred over a dozen cases to law enforcement in the past year. Both Kalshi and Polymarket have implemented new guardrails: blocking politicians and athletes from trading in relevant markets. But self-regulation, as the crypto industry has learned repeatedly, does not satisfy legislators who want statutory authority.

The CFTC's enforcement director said it plainly: insider trading laws apply to prediction markets. The DOJ is investigating. The question is not whether enforcement will happen, but how broadly it will be applied.

The Contradiction at the Center

Here is the part that makes this especially unpredictable:

The CFTC (a Trump-appointed chairman) is suing states to defend prediction markets while Congress (including members of Trump's own party) is introducing bills to restrict them. The same federal government is simultaneously defending and attacking the same industry.

MLB signed a $300 million partnership with Polymarket on March 19. Four days later, Congress introduced a bill to ban sports contracts on prediction markets. The league just bet $300 million on a product that legislators are trying to kill.

This level of institutional contradiction means the outcome is genuinely uncertain. It could resolve in favor of prediction markets (CFTC wins jurisdiction, bills die in committee). It could resolve against them (legislation passes, sports and election contracts are banned). It could end up somewhere in the middle (death/war markets banned, sports markets survive with restrictions, insider trading enforcement intensifies).

For traders, that uncertainty is itself a risk. You are making bets on a platform whose legal status is an open question.

Where Things Stand Today

As of April 2026:

• Five bills introduced in Congress targeting prediction markets
• Three states being sued by the federal government for trying to regulate them
• One state (Arizona) filing criminal charges against a CFTC-registered operator (first ever)
• One DOJ investigation into insider trading on prediction markets
• One major league (MLB) partnership worth $300 million
• $63.5 billion in annual volume in 2025, growing 4x year-over-year

The industry is simultaneously at its biggest and most vulnerable. Prediction markets have never been more popular, more liquid, or more profitable for the platforms. They have also never faced this level of coordinated legal and regulatory opposition.

If you trade on these platforms, stay informed. Read the actual bill texts (the Prediction Markets Are Gambling Act is publicly available). Watch the CFTC comment deadline on April 30. Monitor the Arizona criminal case and the Nevada injunction. And understand that the regulatory landscape in six months may look nothing like it does today.

If you want to understand how prediction market returns compare to alternatives, read the EV comparison. If you are weighing the tax implications of shifting between platforms, the prediction market tax guide covers the US-specific rules. And if you are considering crypto casino games as a more transparent alternative, the crash game math and baccarat guide break down exactly what you are paying in house edge.

The one thing that has not changed: the math. Whether Congress classifies these products as gambling, derivatives, or something else entirely, the expected value calculations are the same. Know your edge. Know your cost. And know that the rules of the game itself might change while you are still playing.