Prediction markets, insider trading, and why onions are still off-limits

A video published today by Patrick Boyle, a finance educator with 1.17 million YouTube subscribers, asks a pointed question: are prediction markets like Kalshi and Polymarket just a more respectable name for legalized insider trading? The 31-minute video, titled "Are Prediction Markets Just Legalized Insider Trading?", is a detailed dissection of how these platforms actually work, who profits, and what the regulatory chaos surrounding them reveals about the state of American financial law.

The short version, according to the video, is not flattering. "We haven't so much invented a truth machine as put a glossy user interface on a 1920s betting shop," Boyle says, "and to make it even better, invited a group of quantitative algorithms to come in and extract money from the public."

The regulatory roots go back to onions

To understand why a federal commodities regulator is suddenly involved in election betting and football games, Boyle traces the history of the Commodity Futures Trading Commission (CFTC). The agency was originally created to oversee futures contracts on things like wheat and cotton, applying what it called an "economic purpose test" - it approved only contracts that served a genuine hedging or price discovery function.

Over time, that definition stretched. Futures on interest rates and stock indices were added. Bitcoin was eventually classified as a commodity. The CFTC's mandate had grown far beyond agricultural markets.

One historical exception stands out. The 1958 Onion Futures Act makes it illegal to trade futures on onions in the United States. This came about after two traders cornered the Chicago onion market in the 1950s, artificially inflating the price before crashing it, causing widespread losses for farmers. Congress passed a specific law in response. The result, as Boyle puts it, is that today "you can legally bet on the outcome of a geopolitical conflict. You can bet on the future price of an internet meme token. And thanks to platforms like Kalshi, you can now bet on who will control the United States Congress. But if you attempt to hedge your exposure to French onion soup, the federal government will step in to protect the public from you."

From election contracts to the Super Bowl

The CFTC had long tried to ban so-called event contracts on elections, wars, terrorism, assassination, and gaming. Their argument was practical: if the agency approved contracts on election outcomes, it would effectively become an election monitoring body, responsible for detecting whether results had been manipulated or whether foreign governments had interfered. That was well outside the CFTC's traditional mandate.

Kalshi challenged this in court. A federal judge sided with Kalshi, ruling that predicting an election was not gaming. With that precedent established, the platforms pushed further. According to the video, their logic was direct: "If a presidential election is just an event, then a football game is surely also just an event, too." Earlier this year, Kalshi began self-certifying sports contracts, offering bets on the Super Bowl, the NBA, and the Masters golf tournament. The platform calls these "event contracts," a distinction that Boyle notes matters to Kalshi, "if not to anyone else."

The move created immediate friction with the states. Since the Supreme Court struck down the federal ban on sports betting in 2018, nearly 40 states had built their own sports betting regulatory frameworks, complete with gambling licenses, compliance departments, and tax collection systems. Kalshi's claim that its products are federally regulated commodity swaps - and therefore exempt from state gambling laws and state taxes - struck many state regulators as a direct challenge to everything they had built over six years.

Arizona filed criminal charges against Kalshi for operating an illegal gambling business. Ohio saw a company invoke a British law dating to 1710, passed during the reign of Queen Anne, which allows third parties to sue to recover other people's gambling losses. The theory was that if Kalshi is operating an illegal sportsbook in Ohio, any person can sue to recover losing bettors' money. Multiple states issued cease and desist letters.

The federal response was unusual. According to the video, "under the new administration, the CFTC and the Department of Justice have gone to federal court to block the state of Arizona from enforcing its gambling laws against Kalshi." The federal government was deploying legal resources to protect a tech platform's right to operate what Arizona considers an unlicensed sportsbook.

Political connections and the truth machine argument

Boyle mentions one detail he considers worth noting: Donald Trump Jr. is currently serving as a strategic adviser to both Kalshi and Polymarket. The video observes, without elaborating, that "the president's son advises the companies that the federal government is currently shielding from state prosecutors."

The platforms' main public defense, however, is not political. It is what their executives call the "truth machine"argument. The core claim is that prediction markets produce more accurate information than traditional polling or expert analysis because participants have to back their opinions with money. When money is on the line, the theory goes, people bet on what they think will happen rather than what they hope will happen. The market price reflects an objective probability.

Boyle examines this claim against the historical record and finds it unconvincing. During the 2012 US presidential election, a single trader lost approximately $7 million systematically buying contracts on Mitt Romney on a platform called Intrade. The goal was not to win the bet. It was to make the race appear closer than it actually was, keeping voter enthusiasm high. "As a media strategy, it's not bad," Boyle says. "Cable news covered Intrade's odds constantly."

A second example: in 2021, YouTuber Brian Rose ran for mayor of London. During the campaign, he was accused of having people place bets on his unlikely victory on betting exchange markets, so that he could point to those odds as evidence of genuine momentum, which journalists then reported. "If a wealthy individual or a political campaign can spend a few million dollars to move the odds on a thinly traded prediction market and then point to those odds as evidence of public support," Boyle concludes, "you haven't really built a truth machine. You've built a PR tool, but one that comes with a chart."

Quant algorithms and the sharks-and-fish problem

The video identifies a structural problem that goes beyond manipulation. According to Boyle, major quantitative trading firms including Susquehanna and DRW - firms that normally act as market makers on stock exchanges - are now setting up dedicated prediction market desks. These firms are reportedly paying traders base salaries of $200,000 a year to build algorithms that systematically identify mispriced contracts on these platforms.

"On one side of the trade, you have a person betting on the Super Bowl because it seemed like fun," Boyle says, "and on the other side, you have a machine that does this 24 hours a day and never gets excited about anything."

He draws a comparison to the collapse of online poker in the early 2000s. Millions of amateur players logged on to play. Professional players followed. The professionals played the odds methodically and eventually deployed bots to play around the clock. "The survival time of a new recreational player on these sites was eventually reduced to not very long." Amateurs concluded they were simply transferring money to a server farm. Liquidity dried up and the ecosystem collapsed. "The sharks had eaten all of the fish and then starved."

Unlike a meme stock, where the price is whatever the next buyer will pay, an event contract eventually resolves to true or false. There is a definitive outcome. A retail trader betting on a geopolitical event based on a hunch, against a gamma-neutral algorithm run by a multi-billion-dollar hedge fund, is facing what Boyle calls "a structural disadvantage. This is not a skill gap that can be closed by doing more research."

The insider trading that advocates call a feature

Perhaps the most striking section of the video concerns what happened on Polymarket in the summer of 2024. A user operating under the pseudonym Rico Suave 666 made a series of precise and lucrative bets on the exact timing of military strikes in the Middle East. The Israeli government later arrested two men, including an army reservist, for allegedly placing bets using classified military intelligence.

"A soldier with advanced knowledge of when bombs were going to be dropped used that information to win money on what is essentially a crypto gambling website," Boyle says, "which is not really what people have in mind when they talk about the wisdom of crowds."

A second example concerns the capture of Nicolas Maduro. Shortly after the US announced the operation, someone placed a series of very large and confident bets on Polymarket that Maduro would be removed from office, reportedly walking away with hundreds of thousands of dollars. Who placed those bets is not established.

What makes the video's treatment of these cases notable is its focus on how the platforms' own advocates respond. According to Boyle, they are "surprisingly relaxed." Their argument is that insider trading is actually a beneficial feature. The insider brings accurate information to the market, the price adjusts to reflect that information, and society benefits from a more accurate forecast. "It's a rather creative argument," Boyle says. "If a military officer leaks classified operational plans so that his friend can win a few hundred thousand on a crypto betting site, we should apparently all be grateful for the positive externality of slightly more accurate price discovery."

The video counters this with a straightforward rationale for why insider trading is banned in securities markets: if ordinary investors believe the game is rigged, they stop investing. And if investment stops, companies cannot raise capital, fund research, or hire workers. "One of the reasons the US economy has been so successful over the last 90 years is that it's had some of the best institutions in the world - fair securities regulation, good consumer protections, and a functioning legal system." The concern extends further: if prediction markets, overseen by the same regulators as investment markets, become associated with systematic unfairness, the resulting distrust "once it sets in is very difficult to reverse."

The social cost of phone-based gambling

Boyle also addresses the broader social impact of making it very easy to lose money from a smartphone at any hour. Since the Supreme Court's 2018 ruling that cleared states to legalize sports betting, the United States has been running what he calls "a large-scale experiment" in accessible phone gambling. Prediction markets on politics, pop culture, and monetary events have now been added to that experiment.

The results, he says, are "not great." Citing academic research highlighted by The Economist, Boyle notes that the introduction of online betting in a given state is associated with a roughly 12-point drop in average credit scores, alongside higher rates of personal bankruptcy and loan delinquencies.

The personal freedom argument - that adults should be able to spend their money however they choose - is acknowledged but qualified. "When millions of people simultaneously damage their personal finances, it stops being a private problem. Loans start to go unpaid, mortgages default, and eventually the costs get absorbed by the broader financial system."

The video describes the overall economic flow in direct terms. The platform collects a transaction fee on every trade regardless of outcome. The quantitative algorithms extract capital from retail bettors. Insiders extract capital from everyone. "Society picks up the tab for the bankruptcies and the unpaid bills. It's a wonderful business model for everyone except the people using it."

The one area where prediction markets genuinely differ

Boyle gives credit where he finds it. In traditional sports books, including platforms like DraftKings, a consistently winning bettor can have their bet size reduced, their market access restricted, or their account closed. The house is the counterparty, so a winning bettor is bad for business. Several states have tried to pass laws making this practice illegal, indicating how widespread it is.

Prediction markets work differently. The platform is not the counterparty - it matches buyers and sellers and collects a fee from both sides. If a user is winning, the platform does not care. "Someone on the other side of your trade is losing and the platform collects its fee either way." In that structural sense, prediction markets are fairer than sportsbooks.

The catch, as Boyle points out, is that the main beneficiary of this fairness is the quantitative algorithm on the winning side of the trade. Meanwhile, DraftKings, FanDuel, and Fanatics have all quietly launched their own prediction market products while simultaneously spending $48 million through a super PAC to push for sports betting legalization in states like Texas and Georgia.

The video ends on a note that resists a clean verdict. "A financial product that is too sophisticated to be called gambling and too simple to be called investing, operating in a regulatory gray zone that exists mainly because no one in Washington can agree on what it actually is." A better characterization than a truth machine, Boyle suggests, is this: "We've just found a more elaborate way of losing money and given it a chart."

How the story has developed in 2026

The regulatory and market dynamics described in the video have accelerated sharply through the first months of 2026. In March, Bloomberg reported that Kalshi raised more than $1 billion at a valuation of $22 billion, led by Coatue Management - doubling its December 2025 valuation of $11 billion in under four months. The Wall Street Journal separately reported that Polymarket was also in early talks to raise at a similar $20 billion valuation. Kalshi's annualized revenue run rate had reached approximately $1.5 billion by that point, with February trading volume exceeding $10 billion - twelve times its level from just six months earlier.

The institutional interest described in the video has only deepened. Charles Schwab's chief executive said in April 2026 the firm is "taking a hard look" at prediction markets, intending to focus on financial events rather than sports or pop culture. Citadel Securities has also been monitoring the space as it evaluates when to enter. A Bloomberg Businessweek investigation published in February 2026 found that sports contracts account for more than four-fifths of Kalshi's trading volume, with Polymarket's entire US-based activity concentrated in sports as well.

The insider trading issue has sharpened into an open public feud between the two platforms. Bloomberg reported in late March 2026 that Kalshi launched a pointed advertising campaign against Polymarket, with employees publicly criticising their rival as congressional scrutiny intensified. Both platforms announced voluntary guardrails: Kalshi blocked politicians from trading on their own campaigns and athletes from betting on their own leagues; Polymarket banned trades based on confidential information. On the commodities front, Kalshi expanded its offerings in April 2026 to include contracts on soybeans, wheat, sugar, copper, nickel, and lithium, citing an explosion in volume driven by geopolitical uncertainty.

Wall Street quants have meanwhile turned to Polymarket for corporate earnings forecasts, with Bloomberg reporting in April 2026 that Wolfe Research found Polymarket bettors correctly predicted earnings misses at a rate of 44% when highly confident - more than double the historic 18% benchmark. Bank of America, in a report cited by Bloomberg on April 9, 2026, now estimates a potential $1.1 trillion market for sports event betting in the United States.

The state-versus-federal conflict shows no sign of resolution. The CFTC has filed suits against multiple states seeking to enforce their gambling laws against Kalshi, even as Arizona's criminal charges - 20 counts in total - remain active. For retail participants, the structural picture described in the video has not improved. The question of who actually benefits from prediction markets has moved from a YouTube finance channel into congressional hearings, federal courtrooms, and the pages of Bloomberg and the Wall Street Journal, with no settled answer yet in sight.

Summary

Who: Patrick Boyle, a finance educator with 1.17 million YouTube subscribers, examines the operators and investors behind prediction market platforms Kalshi and Polymarket, as well as the retail traders, quantitative hedge funds, state regulators, and federal agencies involved.

What: The video analyzes how prediction markets actually function as financial and regulatory instruments - including the "event contract" legal framework, the role of quantitative algorithms, documented cases of alleged insider trading using classified military information, and academic evidence linking online betting to drops in credit scores and increases in personal bankruptcy.

When: The video was published today, April 18, 2026. The incidents and data discussed span from the 1958 Onion Futures Act to trading activity in 2024 and regulatory developments through early 2026.

Where: The platforms and legal conflicts are centered in the United States, involving federal agencies such as the CFTC and the Department of Justice, state-level legal actions in Arizona and Ohio, and trading activity that in some cases involves offshore users or anonymous accounts.

Why: The video argues that prediction markets, despite being marketed as "truth machines" that improve information accuracy, function primarily as wealth transfer mechanisms - moving money from retail bettors toward quantitative algorithms, platform operators, and individuals with access to non-public information - while the regulatory framework remains unresolved and the social costs of accessible phone-based gambling continue to grow.