Why are people betting on war?

0:01Sky News, the full story first.

0:11People are making a mint betting on the Iran war. This is why.

0:27Hi everyone, Neil here And look, if your parents were anything like mine I suspect you grew up with them telling you Gambling, it's a mugs game Which arguably it is Unless that is, you know something no one else does Get this, one person has made nearly$1 million Off of Polymarket Bets Bets solely and correctly predicting U.S. and Israeli military actions against Iran. Makes you say, hmm, right? At the heart of today's story, the website Polymarket, valued last year at$9 billion. Look, if something is being discussed in the news, if something is of importance, whether it's geopolitically, macroeconomically, culturally, we want to have a Polymarket for it.

1:14It calls itself a global cryptocurrency-based prediction market platform. UK regulators call it illegal, seeing it instead as an unlicensed betting exchange. Either way, some users have been making bets about the Iran war that look suspiciously like insider trading. In that case, you could make it very easy to make it very difficult to find out who you are. So today we are asking, who is placing these bets and how are they getting it so right? How close does all this come to the White House? And where exactly is the line between a smart trade and something far murkier? Sam Doak is part of Sky's data and forensics team working on open source intelligence, OSINT.

1:56Sam, not for the first time, you come on this podcast and I know absolutely nothing. Let's start with the basics. Polymarket. Just explain exactly what this platform is. Yeah, so Polymarket, it depends who you ask. If you ask most people, they'll say it's a gambling website. if you ask its users they'll say it's a prediction market like exchange basically if you go on it you'll see what they're referred to as markets this will be yes or no questions so kind of like will x win the world cup will y do something else and it'll be priced between zero dollars and one us dollar the price kind of reflects the probability that the betters kind of think will happen so like Like if kind of based on buying and selling, people think there's a 68 % chance something happened, it'll be priced at 68 cents.

2:43Right. Okay. So let's talk about what you can bet on on the site. I mean, you've mentioned who's going to win the World Cup. You and I obviously know already it's going to be Scotland. But there are other things that you can make a market on. In fact, you can pretty much make a market on anything that is happening in the future. Yeah. So any user can propose a market and then you can basically bet on anything. You can bet on something as kind of common as like, who will win a boxing match, but also we're seeing a lot of people betting on war. So when will a certain country be struck by? When certain towns in Ukraine will be captured?

3:15We've seen that. We've seen stuff that's kind of bizarre, like how many words will be used in certain speeches and things like that. When will certain podcast episodes be published? Notwithstanding Polymarket's kind of definition of itself as a prediction market, it just looks like gambling to me. It just looks like making a wager with someone else on the other side of the bet. What's different to this? than using, you know, say a website like Betfair. First point, a lot of like gambling regulators would agree with you. The key difference is when you're placing a bet, you're basically betting against the bookmaker, right?

3:48Whereas Polymarket, what it does is it pairs you with someone on the opposite side of that trade. So if you place a bet on 68 cents, something's going to happen. Somebody is taking the other side of that bet. Right. So in essence, I mean, Polymarket facilitates these markets, but it's not the person that's on the other side of the bet. Yeah, that's exactly right. Yeah. This sounds a little bit like the kind of more esoteric ends of, you know, like cryptocurrency and things like that. Now, we know that the president of the United States, Donald Trump, has been a big fan of cryptocurrency. Where is he when it comes to prediction markets and inverted commas?

4:25Yeah. So this kind of like decentralized cryptocurrency adjacent business and technology is very popular with the global right. We know Donald Trump's son is actually an advisor to one of these companies, Kalshi. A key Trump backer like Peter Thiel also was one of the key investors in Polymarket, the other main player. Why do we think? I mean, I understand horse racing and people betting on it. I understand people betting on most types of sports. I even understand people betting on the outcome of political events like general elections, local elections, and so on. But why big geopolitical events like Woz, what is so attractive about those markets, do you think?

5:02What we've seen in recent years with how online a lot of these things can play out with videos being shared and people going to Twitter first to find out about these kind of events, it's become a form of entertainment. Our job on the OSINT team at Sky, we can interrogate open sources of data to get new insights into conflicts and you see people doing the same. It's almost like gamifying it from their point of view with increasingly publicly available information. So using the kind of the open source information that you and the rest of the team use for journalistic purposes to try and work out what's going on and tell the world, they're doing it to turn a profit, to be ahead of the curve, to know things that other people don't know.

5:44Yeah, to use that example of like the times in Ukraine, like we, when the Russian government claims that they've captured one, we will kind of look for any kind of videos that we can like geolocate and verify to work out whether that's true. And you see in the forums where these bets are being debated, people are doing the same thing. They're kind of like looking at the evidence and seeing, no, this did happen by this date. Therefore, I win however much money. All of which to me seems absolutely straight up and down. Absolutely fine. You know, if you're clever enough to get out there and work these things out, be ahead of the curve, then you can make money out of it.

6:19Why then are people starting to suspect that some of the predictions made on this marketplace are the result of insider trading, of access to information that isn't in the public domain. That's partly because bets are public, right? You can see when someone's kind of bet a huge amount of money on quite a niche or unusual kind of market. And you've had instances like before the capture of Maduro. Nicolas Maduro, president of Venezuela. Yes, yeah, just before his capture, somebody placed a very, very large bet on that happening by a certain date and ended up winning hundreds of thousands of US dollars.

6:54So someone, for some reason, decided, I think the United States is going to kidnap President Maduro at some point in the immediate future, sticks a bet on this platform, and ends up winning how much? Hundreds of thousands of dollars. Because this is kind of like all anonymous, we don't exactly know who this is, kind of what information they had. It could be that they were just going off kind of like what the US government was saying, like we're going to intervene, he's a criminal, X, Y, Z. But it is very unusual, and it would be very lucky for that to be an accident. And there have been people being similarly in inverted commas, lucky when it comes to the Iran war then?

7:30Yeah, yeah. So obviously there were a lot of things signaling that the US would intervene, but there were very large bets placed just prior to US strikes. And on a similar note, in Israel, two reservists have been charged with using kind of knowledge of upcoming operations to place bets. Suppose we should spend a bit of time then just working out what we mean. We're using the term kind of insider trading, insider information here. I mean, when it comes to something like the Iran war, I mean, what could we potentially be talking about? You could be talking about soldiers, government officials, their friends and family being told information that's not public and sensitive from a military standpoint and placing bets on them.

8:09That's the worry. That's why this has become more of an issue that people are talking about. I'm just trying to make a distinction here. Take, for example, if you are working in the Pentagon and you learn something and then wait off and made a bet, that would be kind of insider trading. If, however, you are the owner of a local pizza establishment, 200 pizzas suddenly get ordered to the Pentagon in the dead of night, and you make a bet on that. That, to me, doesn't appear to be insider trading. Yeah, so I guess it depends what you mean by insider trading, right? Where, like, if it was on the stock market, all of this would be insider trading.

8:43It's non-public information. But that becomes much murkier when you're not being regulated by financial bodies in that way. Polymarket and Kalshi in the last week have... Kalshi is the other big player in this market. Yes. They've both kind of tightened their rules around this. Like Polymarket now explicitly prohibiting bets that have like insider knowledge. But how do you police that is the worry. How much money are people making? I mean, around these kind of Iran war bets. So there's one here, US-Iran ceasefire by a certain date. Would you like to guess how much money has been staked on that?

9:18I don't know, 100, 200? 45 million. What? Yes. Seriously? Yeah, and that's just one. The US forces entering Iran by a certain date, 30 million trading volume, Karg Islands, like a small island hub of the oil trades in Iran, like that being captured, 6 million being bet on when that will be captured. I mean, those figures are eye-watering, Sam, but you're talking about not individual bets, but the size of the entire market, aren't you? Is there any way in which this could just be luck? They could have made these bets and won just through ethical means and legal means. Yeah, absolutely. Like for all of these kind of like large, arguably suspicious bets, like there are kind of reasonable explanations that you could put forward.

10:04It's like kind of like, especially with like Venezuela and Iran, like the US government was quite clear that they were going to do something. I'm not saying that doesn't make us suspicious, but we just don't know at this point. Yeah, I suppose it's what's happening kind of adjacent to Polly Market that really got my attention. Because there are huge amounts of money that could be made from these, what I would call proposition bets, to the extent that journalists have been targeted. Explain this part of the story. Yeah, so something that's very interesting is you have, like, obviously huge amounts of money staked on these quite esoteric kind of questions.

10:39and Manny Fabian, a journalist for the Times of Israel, recently wrote an article about, he'd initially written what was quite a small entry on the Times of Israel blog about an Iranian missile hitting an unpopulated area. He immediately started getting texts and emails and kind of like, initially didn't know why. People were saying like, no, no, no, that was an interceptor. That was an interceptor. An interceptor being? An interceptor missile, kind of like being shot to shoot down an Iranian rocket as opposed to an Iranian missile hitting Israel itself. And it turned out that there was a very, very, very large market on when Iran would strike Israel by.

11:15And a lot of people kind of very incentivized for him to change his reporting to claim that it was an interceptor as opposed to an Iranian missile. So people were literally putting pressure on a journalist to report the facts differently, to change reality just so that they could make a ton of money on this betting market. Yeah, and we've seen this before as well. like the Institute for the Study of War, we use their maps for Ukraine. They map the front line and the changes in it. A couple of months ago, there was like a huge kind of blow up where a map was like updated, then revised. Basically, people betting on when Russia would capture a certain time were furious and claimed that this was a sign that the ISW had researchers that were rigging their markets.

11:58Who are these individuals? Who are making these bets and being so successful? I guess it's very online, very kind of plugged in like crypto people. It's basically gambling for a certain demographic. But very specifically on bets around, for example, the Iran conflict, missiles falling on Iran, people for whom there may well be some degree of inside information. I mean, is it possible to trace who is making these bets and winning on Polymarket? So betting on these sites is anonymous and it's facilitated through cryptocurrency as well. That's not saying you can't, like, we've had investigations here where we've kind of like looked at who might be behind certain crypto accounts and stuff.

12:42Things can be traced, but there is this kind of initial layer of anonymity that does really make you question who is placing certain bets. But if you are using cryptocurrency, which is famously difficult to trace, if you are not being required to sign up with identification documents when you get onto the website, if If you're using those private networks, VPNs, it's set up so that we would probably never know who's making this sort of bet, apparently with some information that they probably shouldn't be using in this fashion. Yeah, in that case, you could make it very easy to make it very difficult to find out who you are.

13:15This all feels just a little bit crazy to me. So ultimately, as things stand, who is regulating Polymarket? So it depends where you are in the US. you have state regulators, you have federal regulators as well. It's a mixed bag in the States, depending on where you are. In the UK, it's the Gambling Commission. They've not given a gambling license, which is why it's not legal here to bet on these sites currently. It may not be legal to use Polymarket in this country, but it's certainly possible to be putting bets on in this country. Yeah. So Polymarket itself doesn't allow UK users. So like if you go to the app store here you can't get it but i mean as you know it's like very easy just to kind of get a vpn and try some workarounds it's not impossible nothing on the internet really is this is where it gets a little bit weird for me we are talking about very large bets being placed very close to events which suggests that people know things that have been either told or have overheard this might sound like a strange question but what is wrong with that there's a few things that's wrong with it, right?

14:19There's a reason that we don't allow footballers to bet on their own matches and things like that. There's an assumption that when you're betting in a market, you're going in with the same access to information other people have. There's a secondary bigger worry, especially with real world events, whether people will manipulate the outcomes of whatever it might be, something important, like a speech up to when a certain strike will happen based on bets. Doesn't that necessarily incentivize escalation in armed conflicts. If you're in and around the White House, and we should say there is no suggestion that anyone in the White House has been participating in stuff like this.

14:57But if you were a policymaker and you saw that you could make an absolute fortune by placing a bet and making a decision that chined with that bet, I can see people being tempted. But you're right. It gives a very easy, quite anonymous way for people to monetize inside information or influence that didn't exist previously. The ethics are the thing that confused me. I mean, back in the day in the Second World War, you had people profiting from war. This looks like a very 21st century version of that. And I'm not sure that we should be in any way facilitated in essentially making bets about whether or not someone will die.

15:35I mean, there was a market on the death of the supreme leader, wasn't there? Yeah, there was. And there's been markets on the deaths of quite a few famous people. I think when polymarket came across a lot of people's radars for the first time was when there was a very large market for when Pope Francis would die. That's not the first time people have bet on the Pope dying. It was a problem in the 15th and 16th century to the point where you get excommunicated for it. But yeah, it's allowing bets that a lot of bookmakers not only wouldn't take because the markets are too niche, but also they wouldn't take for ethical reasons.

16:07Look, the proponents of all of this are making quite an interesting argument that actually you can use these prediction markets as a means of determining what is likeliest to happen. And they have had success, particularly around the election of Donald Trump, for example. Yeah. So I guess the election of Donald Trump is quite an odd example because you're not polling everyone, right? You're polling online crypto gamblers who might have certain political liens in a way that might make them more likely to think that a certain candidate would win. They got it right, though. They did. Yeah. says a lot about the times we're living in.

16:38It certainly does. Well, actually, that's where I want to conclude. Are governments using this sort of stuff to make decisions themselves? Not to my knowledge. I've never heard of a government using this kind of thing to gauge public sentiment. But I think that where you do hit a snag is people seeing these and thinking that the odds given are the likelihood of something happening. It's important to contextualise this. This is a certain type of better betting on something. Is this capable of regulation? I don't know how it could, because you're not just looking at big geopolitical stuff, right?

17:11You're talking about speeches, when TV shows will happen. It's the amount of people that become insiders in that. Well, couldn't you get rid of anonymity? Wouldn't that do it? Yeah, you could, but that's not very in vogue with the crypto crowd. What do we know about those behind Polymarket? You've mentioned already, they are changing their terms and conditions. They are making it clear that they do not permit this sort of stuff. But they do. permit this sort of stuff because there's no way of them stamping it out. I guess the way that kind of polymarketing companies like it frame it is that they're actually not really taking a huge part in the whole process.

17:45They're a platform where people propose bets and then the bets are settled by kind of holders of the tokens voting. I guess from their point of view, there's not much to regulate. Thanks very much indeed. Cheers. Thanks. That's a lot for this episode. If you've been concerned about any of the issues raised, if you have an issue around gambling, head over to gambleaware.org. Plenty of advice on the website. And do let us know what you think about today's topic, insider trading, blind luck. You can email me directly, why at sky.uk. We're back again tomorrow. Till then, take care.