Prediction Markets and Insider Trading is a Self-Fulfilling Prophecy for World War III

In recent months, prediction markets like Polymarket have shattered taboos by letting users bet on geopolitical violence – and some of those bets have been chillingly prescient. As The Atlantic bluntly warned, “Insider trading is going to get people killed” because these “war markets are a national-security threat.”. For example, a user named “magamyman” on Polymarket turned roughly $20,000 into $120,000 by wagering that Iran’s Ayatollah Khamenei would be “out of power” after a U.S. strike. (In the words of Saahil Desai, the Atlantic author, “If Khamenei had been a Polymarket user, he might still be alive.”.) Similarly, hundreds of millions of dollars were wagered in the 24 hours before the Iran attack: one analysis found about $529 million on the timing of the strike and $150 million on Khamenei’s removal. Six anonymous traders even split roughly $1.2 million by betting that the U.S. would “strike Iran by Feb 28” – a bet that paid off when bombs fell. And this pattern is not limited to one conflict: in January 2026 an unknown bettor wagered $32,000 that Venezuela’s President Nicolás Maduro would be deposed by month’s end, pocketing over $400,000 when U.S. forces indeed captured him just hours later.

An Unregulated, Anonymous Casino

Polymarket operates in the shadows of the financial system. It trades in cryptocurrency, not cash, and hides user identities on the blockchain. Americans aren’t even supposed to gamble there directly (Polymarket was banned in the U.S. from 2019–2022), but tech-savvy users simply use VPNs to connect. In practice, “it’s relatively simple to skirt these laws,” one New Yorker analysis noted. No background checks are done on who places a bet, and even regulators acknowledge the challenge: U.S. officials like former SDNY U.S. Attorney Jay Clayton and CFTC Chair Michael Selig have vowed to hunt down fraud and manipulation on these platforms, but admit the legal tools are not fully settled. The Commodity Futures Trading Commission even views war-related bets as “contrary to the public interest” – essentially illegal on U.S. exchanges – but Polymarket’s offshore setup means it can (so far) flout those rules in practice. As one legal guide puts it, “prediction markets may not involve ‘securities’” in the traditional sense, so many insider‐trading safeguards don’t automatically apply.

The upshot is a regulatory gray zone: anyone with a crypto wallet can place million-dollar bets on U.S. military actions or foreign coups, with almost zero transparency. Polymarket claims to forbid illegal activity, but insiders quip that “with a few taps on a smartphone, anyone with privileged knowledge can now make a quick buck”. In effect, modern war has joined the betting tables. One observer warns this creates a “new problem” for national security, where civilian volunteers and even enemy agents can translate secret information into profits.

Corruption of the Public Trust

Unsurprisingly, U.S. lawmakers have reacted with alarm. Just weeks after the Venezuela incident, two Democratic senators (Jeff Merkley and Amy Klobuchar) announced legislation to bar the President, vice president, members of Congress, and staff from trading on contracts tied to government policy or actions. On the House side, Rep. Ritchie Torres (D-NY) introduced the “Public Integrity in Financial Prediction Markets Act,” co-sponsored by dozens of Democrats and even Nancy Pelosi. These bills would prohibit any federal official from buying or selling prediction-market contracts on issues they know about through their jobs.

The moral rationale is strong. As Senator Merkley put it, when officials use inside information for bets, it “undermines the public’s belief that government officials are working for the public good, not for their own personal profits”. Congressman Torres warned that the collision of prediction markets with government insiders “is no longer an imagined risk but [a] demonstrated danger,” and “Prediction-market profiteering by government insiders must be prohibited—period.” He bluntly reminded colleagues: “No elected official is elected to profit from elected office. Government is not a for-profit enterprise; it is a public trust”. In short, even the appearance of betting on wars or policy outcomes for gain is corrosive. One legal expert agrees that using “material nonpublic information” to trade event contracts is just as wrong as insider trading in stocks.

The outcry transcends party lines. Democratic Sen. Chris Murphy and Rep. Mike Levin joined the chorus on social media: “It’s insane this is legal,” Murphy wrote about the Iran strike bets, while Levin stressed that prediction markets “cannot be a vehicle for profiting off advance knowledge of military action”. The White House even had to disclaim any official involvement (“the only special interest guiding the Trump administration’s decision-making is the best interest of the American people,” a spokesman said). Given these concerns, Congress is poised to apply to prediction markets the same ethics rules that already govern securities: for example, the 2012 STOCK Act already bans lawmakers from trading stocks with insider information, and could be amended to include event wagers.

Betting on Bloodshed

Beyond ethics and legality lies a darker truth: these markets devalue human life. Betting on coups or strikes is, in effect, commodifying violence. One commentator notes that families fleeing war risk their lives by running into gunfire, while prediction‐market punters “make their wartime gambits from someplace comfortable and safe, and hope to hit it big off of someone else’s misfortune.” The juxtaposition is grim. Polymarket even flirted with wagers on nuclear detonations, and one platform once offered a “death market” for Khamenei’s fate – bets that many found chillingly distasteful.

Those consequences are not theoretical. In Israel, a joint security investigation recently uncovered an Air Force reservist and a civilian who used classified intel to bet on Israeli strikes in Iran. The Israeli military publicly rebuked this as “a severe ethical failure and a clear crossing of a red line.” It warned that such bets – placed with secret, classified information – “pose a real security risk to [military] operations and to the security of the state.”. In other words, a tipster might learn of a strike date and cash in on Polymarket before the bombs even drop, endangering both the mission and lives on the ground.

These warnings are echoed by independent analysts. Prediction markets effectively become intelligence sources: sudden surges in bets can tip off interested parties that something is about to happen. An adversary (or even a talented drone operator or hacker) could monitor these odds and exploit them – for example, by striking first or by placing deceptive bets to trigger panic. One analysis soberly notes that failing to regulate these markets “could pose important risks to national security” such as giving advance warning of attacks or allowing adversaries to “sow geopolitical instability” via market manipulation. As the War on the Rocks journal put it, “tens of millions of dollars are wagered on events that could kill thousands.” With so much profit on the line, insiders may even time military operations to favor their positions rather than strategic objectives. In short, while a handful of gamblers might win big, the price in human lives could be catastrophic.

Toward Regulation and Accountability

The only sane response is swift reform. First, prohibit any betting market tied to violence. Decades ago the CFTC banned war, assassination, and terrorism contracts as contrary to the public interest; that ban should be reaffirmed and expanded beyond U.S. soil. Platforms like Polymarket and Kalshi should immediately be forbidden from offering any market that depends on death or conflict.

Second, lock down insider trading rules. Congress should extend the STOCK Act framework to event markets: require public officials to disclose any prediction-market positions, and make it illegal to trade on any government-related contract while in office. Rep. Torres’s and Sen. Merkley’s bills would explicitly ban federal employees from such trades if they have nonpublic policy information, a common-sense guardrail. In practice, this means bar every member of Congress and executive-branch appointee from touching Polymarket or Kalshi trades tied to their work. Where loopholes exist (e.g. offshore platforms or crypto anonymity), regulators must close them: enforce strict identity checks, require reporting of large bets, and prosecute violators under existing fraud and securities laws.

Third, enhance oversight. The Commodity Futures Trading Commission should treat prediction markets as within its purview and develop clear rules on event-contract reporting. The SEC and DOJ should likewise signal that insider trading or manipulation in these venues is illegal. Platforms themselves must adopt robust anti-fraud measures – for example, Kalshi already disallows bets on death and claims to ban insiders, a model Polymarket could follow if it wishes to be trusted.

Finally, the moral answer: As common decency, elected officials must refuse to engage. Polymarket’s flagship investors even include people close to the former President, but for any official the line is drawn at gambling on war. “We are incentivizing lots of people to use their knowledge of classified information for their own benefit,” warns Dennis Kelleher of public-interest group Better Markets. The antidote is clear: political leaders should act as stewards, not speculators.

• Ban all war/assassination markets. Enforcement of the CFTC’s long-standing ban on death-related contracts must be global.
• Bar officials from trading. Treat prediction contracts like forbidden financial securities for government employees.
• Expand insider-trading law. Amend the STOCK Act or related statutes to cover event wagers and require full disclosure of any contracts held.
• Boost transparency. Impose strict KYC/AML on crypto platforms and require real-time monitoring of suspicious trading patterns.

These steps have bipartisan support: federal lawmakers from both parties are already moving to adopt them. The rationale is as much moral as practical. Prediction markets have turned tragedy into a commodity, distracting from the plight of war victims and offering a perverse financial incentive for violence. Bettors are, in effect, gambling on people’s deaths. That is morally repugnant, and it has no place in American politics.

Ultimately, public servants must remember George Washington’s axiom: they hold the trust of the people, not their own ledger. If we allow “prediction-market insiders” to trade on decisions of life and death, we sacrifice our credibility and safety. As one critic put it, the only winning bet here is to outlaw the game. Every day that law or ethics lag behind technology, more real lives hang in the balance. It’s past time to call off the wagers on war – before it literally costs us too many lives.

Sources: Recent investigations and analyses document multiple large Polymarket bets on US and foreign strikes. Lawmakers from both parties have introduced legislation and voiced concerns about prediction‐market insider trading. Commentators and security officials warn that such markets pose grave ethical and security risks. Evidence and proposals cited above are drawn from journalism and expert analysis on Polymarket and related platforms.