Binance.US has indicated plans to apply for the Commodity Futures Trading Commission’s (CFTC) designated contract market (DCM) license, presumably to join the prediction markets race. Robinhood is reportedly in talks with Crypto.com to add prediction contracts of its own, and Polymarket, having bought its own CFTC-licensed derivatives exchange last year, is now wooing institutional traders.
Despite all the excitement around prediction, no one seems to agree on what they actually are: swaps, futures, serious business, or wanton speculation? All we know is that they’re popular, topping $50B in July volume.
The founders of prediction markets say they harness the wisdom of the crowds, while critics decry them as gambling dens in disguise. In May the CFTC approved Kalshi’s bitcoin perpetual as a futures contract; in June the Chicago Mercantile Exchange (CME) sued arguing that perpetuals of this kind are really swaps.
This debate is actually 120 years old. In 1905, the Chicago Board of Trade, the preeminent exchange where wheat, corn, and oats were traded, sued Christie Grain & Stock, which it accused of running a bucket shop that took side bets using the Board’s own pricing data without paying for a seat. Christie shot back that the Board of Trade itself ran “the greatest of bucket shops” by letting traders buy and sell grain contracts without ever intending to take delivery.
The Supreme Court 6-3 ruled in the Board’s favor, rejecting Christie’s argument that futures speculation was merely a sham wager. Justice Holmes wrote:
“Speculation of this kind by competent men is the self-adjustment of society to the probable. Its value is well known as a means of avoiding or mitigating catastrophes, equalizing prices, and providing for periods of want.”
Traders like to call this speculation “expressing a view,” which makes placing a bet sound almost genteel, like defending a doctoral thesis. Views are often expressed by serious people conducting serious business, but they can also come from Joe Schmoe day-trading in his underwear. Nowadays, more options than ever exist for both.
Say you run an airline, and you sensibly want to hedge the price of jet fuel. You can use crude oil futures on NYMEX to hedge much of the exposure, buy a call option if you prefer a convex product, or sign a swap, forward or collar with a bank.
Now suppose you are Joe Schmoe with the same view: oil is heading higher. You can also buy the same crude future the airline bought, or a micro one sized for your retail account. You can buy an oil fund: USO tracks oil futures, UCO doubles the daily move, and SCO doubles the inverse daily move.
If you’re in the UK or Australia, you can trade a contract for difference (CFD) at up to 10:1 leverage, with higher limits if you qualify as a professional or wholesale investor. Outside the US, some on-chain venues such as Ostium, Hyperliquid and Variational list perpetuals linked to crude or other commodities, with leverage varying by product and venue.
Prediction markets allow you to make even more specific bets, taking your view on what the gas price will be on the U.S. election day this year or how much crude Iran will pump this month.
None of these instruments are investing or gambling by nature. A call option can be prudence for the airline and a lottery ticket for the day trader. The instrument cannot tell the difference, and because of that, it travels from institutions to retail and back. The instruments businesses built for hedging have drifted down to retail for betting, and now retail’s betting venues are inviting the institutions in to hedge.
In June Polymarket completed its first block trade — a six-figure contract between the broker FalconX and the trading firm Anera Labs, referencing the Ornn Compute Price Index, which tracks the rental price of Nvidia’s H100 chips. A bet on the price of renting a graphics chip is a reckless punt for the day trader but a textbook hedge if you run a data center.
Polymarket’s head of institutional liquidity, Brooke Rizzetto, says the goal is to let companies hedge GPU compute at scale. In her view, “prediction markets are emerging as one of the most powerful venues for institutional block trades, and this transaction is proof.”
In his 1905 majority opinion, Justice Holmes acknowledged that “incompetent persons bring themselves to ruin by undertaking to speculate in their turn”, yet cautioned legislatures and courts against blanket bans, which he described as “coarse attempts at a remedy.”
The wiser course is not to rule in advance whether prediction markets constitute
the valuable “self-adjustment of society to the probable”
or are merely a gambling den. Most financial instruments can plainly be both, depending on who holds the contract and to what end. In 2026, with more ways to bet on a forecast than Holmes could have imagined, the case for keeping the door open is stronger than the case for closing it.
