Federal Government Argues Local Bans Are Inflicting Immediate Economic Harm on Hedgers

There has been a recent clash between the Trump administration and state governors, where governors are attempting to bring in local bans on prediction market sites. However, the Trump administration is arguing that bans could harm economic hedgers.

While Donald Trump hasn’t previously shown any interest in prediction market sites, his son, Donald Jr., is now tied with two major prediction market sites, so there’s certainly an invested interest here. But with local state governors worried about ethical problems surrounding people trading with insider knowledge, will these bans prevail?

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Federal Government and States Clash Over Prediction Market Regulation

There are two sides to this coin. On one side, the Trump administration is arguing that the federal government should have control over the prediction market industry. On the other hand, there are local laws attempting to be passed that aim to ban prediction market sites outright. As several states move to ban prediction market apps like Kalshi and Polymarket over growing concerns of insider trading, the Trump administration is siding with the industry, arguing that state-level bans could cause economic harm.

Kalshi Responds to Prediction Market Concerns

With allegations of people trading on prediction markets who have insider knowledge, Robert DeNault at Kalshi has stepped in. DeNault has confirmed that Kalshi is continuously monitoring for insider trading, with it being a top priority. In 2025, Kalshi launched 200+ investigations in total, with more than 200 being done in the first quarter of 2026.

With growing concerns over the integrity of prediction markets, DeNault stated that Kalshi does name-match recognition across all markets, including sports, political, and economic predictions. For example, when it comes to political markets, Kalshi searches data for all salaried campaign staff. If those names appear on the trading lists on any political markets, it flags up, and Kalshi removes them. DeNault has stated that this method has prevented hundreds of insider trading cases from happening, indicating that prediction market sites don’t need federal regulation and that they can regulate themselves.

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Minnesota Is the Latest State to Tackle Insider Trading

Minnesota has become one of the most recent states to side against prediction market sites. Just a day after Governor Tim Walz signed a bill into law that aims to put a total state-wide ban on prediction markets, the Trump administration has sued the state. The CFTC has attempted to block the law from coming into action by requesting an injunction from the court. Trump responded by taking to social media, stating that it’s “critically important” for the federal government to take back control.

What’s Next for Prediction Markets?

With an uncertain future ahead for prediction markets, it has raised ethical questions about trading. State governors argue that people with insider knowledge and political influence can trade on various events. With legal disputes rising, the outcome of these is unclear as of right now. Ultimately, the outcome will determine whether or not prediction markets are to be regulated federally or by individual states, in the same way as online sports betting.

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