Prediction markets are on fire. Last year, there was about $51 billion in total transaction volume on prediction markets. This year, volume exceeded $60 billion in just three and a half months, including over 192 million unique prediction market transactions and over 865,000 active users in March. Some estimates predict this market could grow to $1 trillion over the next several years.
Given this massive influx of retail participation in these markets, we need to update the regulatory framework to protect investors, strengthen market integrity, and keep America at the forefront of this latest financial innovation.
On a prediction market, investors buy and sell contracts tied to whether a specific event will occur. Those contracts are powerful tools that often outperform polls and experts. Through them, collective knowledge forecasts future events, allowing businesses and individuals, from small businesses managing inventory to investors hedging portfolios, to protect themselves against uncertainty.
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Their prices also offer real-time observations about what the market expects to happen. There is no doubt that the data from prediction markets is newsworthy, and even trusted news sources have taken notice.
Bottom line: Prediction markets are here to stay. Consumers, investors, companies, and financial institutions are increasingly seeing their value. Congress should too, but we must also guarantee greater clarity and stronger protections for everyday Americans.
That is why I introduced the Prediction Market Act this week, along with Senator Kirsten Gillibrand, to bring greater clarity and – pardon the pun – predictability to prediction markets. That framework is guided by three principles.
First, strengthen consumer protection. While prediction markets already operate under oversight by the Commodity Futures Trading Commission, the current regulatory regime for exchanges was not designed with everyday retail participants in mind. My bill fixes that by heightening scrutiny on the types of event contracts available to users, increasing investor protection standards on exchanges, and boosting retail consumer protections. These provisions make clear that Americans already engaged in these markets can do so with confidence.
Second, set clear ethical guardrails to ensure the public trust. My bill ensures public officials will not personally profit from events they influence by prohibiting them from owning any event contract.
Third, keep America in the lead of this fast-growing industry. I know from my time running businesses that nothing stifles innovation like unclear and uncertain regulations. Absent clarity, we risk pushing this industry – and all its attendant benefits – overseas. The bill supports responsible development for the retail investors of today and tomorrow.
As with anything new, there are disagreements over certain areas, such as the treatment of sports. However, even as the courts grapple with these questions and regulators work to update rules, it is clear that prediction markets are here to stay. The costs of inaction are also clear: risks to consumers and a growing likelihood that this burgeoning industry will move off-shore.
So the real question is, will the United States lead the way and develop strong, safe, and fair markets? Our legislation lays the foundation for that future.
