Kalshi, Polymarket Diverge on Handling of Iran War Predictions

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1:39Bloomberg Audio Studios, podcasts, radio, news. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. We're also keeping an eye on prediction markets, especially in the context of war. Traders on Kalshi and Polymarket debated and bet on Iran's future. markets responded to news of US and Israeli forces bombing Tehran. Kalshi froze a market on whether the Ayatollah would be out as supreme leader, citing rules that markets cannot be tied to death and reimburse traders for fees and net losses after some objected to the resolution.

2:15Chris Beam:Go ahead. Yeah, we've got Chris Bean back with us. He's contributed to Bloomberg Business Week. He's also the author of the cover story of the current issue of Bloomberg Business Week. It's about how Polymarket and Kalshi are gamifying the truth. He joins us from New York. Chris, Chris, what are you allowed to, in the context of a conflict, what are you allowed to bet on, on Calci and Polymarket? Well, there's very different answers for each platform. And explain why that is. So fundamentally, Calci is a U.S. company that is registered with the CFTC. And so every market that appears on Calci needs to adhere to U.S.

2:57law. Polymarket is slightly more complicated. It does have a U.S. entity, but you can only bet on sports on the U.S. platform. The vast majority of Polymarket's trading happens on its international platform, which is outside the jurisdiction of the CFTC. And who regulates that? If it's not the CFTC regulating that, who regulates that? Um, well, it depends on it's every other country where people are trading. So that platform is technically based in Panama. So it does have to follow some Panamanian law. But the laws that apply to the platform often are the in the countries of where the traders are located, not where the business itself is located.

3:48so so when we have sorry i interrupted you so many times you couldn't even answer the question

3:52Chris Beam:so when we have exchanges like the new york stock exchange or ice like uh inter intercontinental exchange when they're lining up with these companies or doing deals or collaborations as the nysc is doing with polymarket like i mean they're basically though partnering with a company that does a lot of sports gambling right Well, that is certainly how a lot of critics of the prediction market platforms are framing it. They see trading on prediction markets as no different from sports gambling, whether you're betting on sports itself or other topics. The way that these companies see it is that you're trading what they call event contracts.

4:42And that's very different from gambling for all sorts of technical reasons. But when it comes to these war markets, I mean, you raise an interesting point. Like, are some of the more traditional financial organizations like Intercontinental Exchange, which has partnered with Polymarket, are they going to have a problem with platforms, you know, allowing people to bet on war or, you know, which leaders will be deposed? That's why you've seen such a different reaction from these two different companies. Kalshi has kind of bent over backwards to say, we're not letting people bet on death one way or the other.

5:21That's why they froze the market on the supreme leader of Iran once it became clear that he was dead. In Polymarket's case, because all of these war markets that we're talking about are overseas and have nothing to do with what is or is not allowed in the U.S., my guess is that Intercontinental Exchange and others are just treating that as a completely separate company that doesn't involve them.

5:52Chris Beam:So like a firewall, but it is still the same company, correct? So it is essentially a firewall where Americans are geo-blocked from trading on Polymarket's international platform. So if you wanted to illegally trade on Polymarket's international platform, you would need a VPN. And that's definitely happened. Americans have done that. But it's technically against the law. In the case of, you know, are they are they separate companies? Yes. But they both operate out of Polymarket's New York headquarters and they both have the same social media presence. So you can be forgiven for being a little confused.

6:40Would Calci benefit from being outside of being regulated by the CFTC rather than being here in the United States? Would they benefit from structuring like Polymarket? That's a really good question. I think the two companies are taking very different strategies. Um, Calci probably sees operating in the U.S., following the rules, um, welcoming regulation as a path to winning in this space. Um, it's just a very different path from, um, poly markets where, uh, the vast majority of the activity is happening overseas and their business model is therefore likely to be different in the long term. Oh, okay.

7:30Chris Beam:So, but still on Polymarket in the US, a lot of it is sports, right? And still sports. And dare I say, can I say gambling? Like, I'm not even quite sure. Is it correct to say that? So the answer to your first question is you can only bet on sports on Polymarket's US platform. That's the only type of wagering, betting, gambling, whatever you want to call it, That's allowed. They say that they are going to add other categories like politics or entertainment, but they haven't done that yet. The the problem is as far as what to call it, I've seen Tarek Mansour, the CEO of Kalshi, say that he's he's comfortable with the word betting.

8:21he's less comfortable with the word gambling. So I guess Kalshi tries to draw a line there saying, you know, betting could just be a synonym for predicting, whereas gambling has different implications about the odds and the role of the house or the bookie and how much of a cut they take. Yeah, that's a good point, because these are yes-nos. And you've explained this to in the past when we've interviewed you, because these are yes, no's, there's not the same sort of like the house always wins when it comes to when it comes to gambling. Hey, insider trading on these. Calci was in the news last week because it said it fined and banned two traders who violated Calci's rules.

9:07This seems like it's going to become a growing problem, not just on Calci, but also on on Polymarket. How are they policing this? Yeah, so CalG has been very proactive, I would say, about saying that they're addressing insider trading, they're surveilling traders and using algorithms to detect patterns that suggest that someone might have insider information. And then, as you said, they've announced some cases where they've actually cracked down on insider trading and fined people. And they claim that they've sent more than 200. They've investigated more than 200 cases. You know how that compares to the extent of the problem.

9:59Yeah. We don't really know. 200 seems like a small number. Yeah. In the grand scheme of things, it does. And what's interesting is that Polymarket, for its part, doesn't really talk about this at all. When I was working on the piece a few weeks ago, Polymarket did not respond to questions about insider trading. And the big headlines that you see generally, you know, insider trading on the Iran attack market, on the Maduro market a few weeks ago, those are almost all on poly market because you're not seeing any regulation there. And there seems to be very little appetite to actually do anything about it.

10:43Chris Beam:I feel like every time we have these conversations, Chris, it just reminds me that at some point, I think regulators are going to have to come in at some point and kind of figure this out. And just got about 20 seconds, 25 seconds. Yeah. And it depends what kind of regulator. You know, the current chairman of the CFTC says he wants to regulate this, but it's unclear what he's actually going to do. If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But in life, even the best strategies can't prevent every bad day. A fire, a loss, a disruption that demands immediate attention.

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