Given the rampant corruption surrounding the Trump Administration, it’s reasonable to wonder whether the well-timed wagers are coming from people directly connected to the White House. But there are other possibilities, too. An analysis of Polymarket data by the Times showed that on Friday, February 27th, more than a hundred and fifty accounts each bet more than a thousand dollars that a U.S. strike on Iran would take place by the next day. Preparing to launch such an attack surely involved informing a large number of people, including members of the U.S. and Israeli military chain of command, well-connected diplomats, and ordinary soldiers or airmen who got called into action. Earlier this year, Israeli authorities charged two people, a civilian and a military reservist, with using classified information to place bets on Polymarket. “Part of the problem is that the number of people who are insiders is very large,” Dennis Kelleher, the president and co-founder of Better Markets, a Washington-based public-interest group, told me. “We are incentivizing lots of people to use their knowledge of classified information for their own benefit.”
The basic problem, Kelleher said, is the way in which prediction sites are regulated and policed—or, rather, not regulated and not policed. Despite Murphy’s statement about the bets on the Iran strikes being legal, using classified information to make a profit is potentially a serious crime in the U.S. Moreover, in 2011, the Commodity Futures Trading Commission (C.F.T.C.), which has jurisdiction over “events contracts” under the Commodity Exchange Act, issued a ruling that contracts involving terrorism, assassination, or war were contrary to the public interest and prohibited on a U.S. trading exchange.
In practice, however, it’s relatively simple to skirt these laws and regulations by exploiting the anonymity of prediction platforms, particularly Polymarket. And there isn’t much reason to fear being caught. Although Polymarket is based in New York—it was founded in 2020 by Shayne Coplan, a young entrepreneur who dropped out of N.Y.U. to pursue crypto ventures—its main prediction platform operates offshore. This structure means that it isn’t subject to the know-your-customer laws, which require most U.S.-based financial institutions, including crypto exchanges, to ascertain the real identities of their customers and to monitor their transactions. The fact that bets on Polymarket are placed on the blockchain, which is extremely difficult to penetrate, provides another layer of protection for would-be profiteers.
Technically, it is still a violation of American securities laws for a U.S. resident to place a bet on Polymarket’s offshore market, but many people get around this by installing a virtual private network, or V.P.N., which masks their I.P. address, and using it to connect their crypto wallet to the site. Can you blame them when the President has made a fortune by promoting his family’s crypto companies and has shown few qualms about crypto’s criminal underbelly? Last year, he pardoned Ross Ulbricht, who was serving life in prison for running Silk Road, a dark-web marketplace frequented by drug dealers, and Changpeng Zhao, the billionaire founder of the Binance crypto exchange, who had pleaded guilty to failing to maintain effective anti-money-laundering programs. In the current Administration, U.S. regulators and law-enforcement agencies seem to largely turn a blind eye to crypto violations. During the Biden Administration, the Justice Department and the C.F.T.C. launched investigations into whether Polymarket was illegally accepting bets from people in the U.S. But last summer the two agencies informed the company that they had closed their investigations and would take no further action.
A couple of months after this news emerged, Polymarket announced that Donald Trump, Jr., was joining the company’s advisory board, and that 1789 Capital, the venture-capital outfit at which he is a partner, had made a “strategic investment” in the firm. Donald, Jr., also acts as a “strategic adviser” to Kalshi, which is another prediction market, but one that operates in the U.S. Earlier this year, the C.F.T.C. withdrew a Biden-era effort to prevent Kalshi from accepting bets on the outcome of sports events and political elections. The agency’s Trump-appointed chair, Mike Selig, said last week that it is preparing new rules for prediction markets, but most observers expect the agency to stick with its light-handed approach.
