Prediction markets face scrutiny over security and insider trading risks

New reports and regulatory concerns are highlighting the risks associated with prediction markets, specifically regarding insider trading and national security.

The Anti-Corruption Data Collective (ACDC) has warned that prediction markets may expose US military secrets. The report identified at least 152 cryptocurrency wallets on Polymarket that successfully traded on undisclosed US military actions. The ACDC refers to these highly successful bettors as ‘Orcas’ and suggests that such activity could indicate that government insiders are leaking information to adversaries or using privileged data to profit, potentially endangering military personnel.

In Canada, the rise of prediction markets through platforms like Wealthsimple has prompted caution from major financial institutions. Wealthsimple allows users to bet on corporate metrics, such as sales figures for companies like Shopify and Air Canada, before they are publicly reported. Legal experts have raised concerns that existing insider-trading laws may not adequately cover these markets. In response, banks including RBC and Scotiabank have implemented restrictions prohibiting staff from using prediction markets to speculate on markets, indices, or individual companies.