1 00:00:02,360 --> 00:00:09,959 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm Stephen Carol on 2 00:00:10,039 --> 00:00:12,479 Speaker 1: This is Here's Why, where we take one new story 3 00:00:12,520 --> 00:00:14,520 Speaker 1: and explain it in just a few minutes with our 4 00:00:14,560 --> 00:00:16,160 Speaker 1: experts here at Bloomberg. 5 00:00:19,800 --> 00:00:22,600 Speaker 2: Our goal with Prediction Marcus is really to allow every 6 00:00:22,640 --> 00:00:24,800 Speaker 2: person that has an opinion on something to find them 7 00:00:24,920 --> 00:00:27,520 Speaker 2: market and that big event that they care about to 8 00:00:27,560 --> 00:00:28,360 Speaker 2: be able to trade. 9 00:00:28,200 --> 00:00:30,960 Speaker 1: On the business of making a market in futures contracts 10 00:00:31,040 --> 00:00:33,000 Speaker 1: tied to events is exploding. 11 00:00:33,120 --> 00:00:36,239 Speaker 2: Polymarket had sixty percent odds of this deal closing the 12 00:00:36,280 --> 00:00:37,120 Speaker 2: Netflix purchase. 13 00:00:37,159 --> 00:00:38,400 Speaker 1: By the end of twenty twenty six. 14 00:00:38,720 --> 00:00:43,319 Speaker 2: After President Trump's comments, those odds plummeted to twenty three percent, and. 15 00:00:43,280 --> 00:00:45,320 Speaker 1: When you look at the Polymarket odds, you can see 16 00:00:45,320 --> 00:00:48,600 Speaker 1: that betting markets have turned more dubbish. Overall. The odds 17 00:00:48,640 --> 00:00:51,519 Speaker 1: are highest at twenty five percent for three FED rate 18 00:00:51,600 --> 00:00:55,640 Speaker 1: cuts in twenty twenty six. Prediction markets give people the 19 00:00:55,680 --> 00:00:58,840 Speaker 1: ability to bet on the outcome of almost anything, from 20 00:00:58,880 --> 00:01:01,319 Speaker 1: what's going to happen to the economy to who win 21 00:01:01,480 --> 00:01:05,240 Speaker 1: best actor at the Oscars. These platforms have exploded in 22 00:01:05,280 --> 00:01:09,160 Speaker 1: popularity and now handle billions of dollars in bets every week, 23 00:01:09,480 --> 00:01:13,960 Speaker 1: but regulation hasn't necessarily kept pace with their growth. Here's 24 00:01:14,000 --> 00:01:21,240 Speaker 1: why prediction markets are the world's casino. A digital finance 25 00:01:21,280 --> 00:01:24,040 Speaker 1: reporter Emily Nicole joins us now for more. Emily, good 26 00:01:24,040 --> 00:01:26,800 Speaker 1: to talk to you. First of all, for the uninitiated, 27 00:01:27,000 --> 00:01:28,559 Speaker 1: how do you prediction platforms work? 28 00:01:29,120 --> 00:01:33,360 Speaker 2: Prediction markets are event contracts that typically have binary outcomes, 29 00:01:33,360 --> 00:01:35,640 Speaker 2: so you mostly you will buy a yes or a 30 00:01:35,720 --> 00:01:38,680 Speaker 2: no based on a specific outcome to a question. So 31 00:01:38,760 --> 00:01:42,040 Speaker 2: say it's, for example, who will win best Actor the Oscars. 32 00:01:42,360 --> 00:01:45,319 Speaker 2: You could buy yes Chez betting that it's going to 33 00:01:45,319 --> 00:01:48,280 Speaker 2: be Kate Winslet, or you could buy no, chez betting 34 00:01:48,320 --> 00:01:50,080 Speaker 2: that it's going to be I don't know, Robert Pattinson, 35 00:01:50,120 --> 00:01:52,360 Speaker 2: whoever you want it to be. Of the options that 36 00:01:52,360 --> 00:01:56,160 Speaker 2: the platform sists anyway, and the price at which you 37 00:01:56,200 --> 00:01:58,320 Speaker 2: can buy those shares is going to be anywhere between 38 00:01:58,440 --> 00:02:02,480 Speaker 2: zero dollars and one dollar, and the amount what determines 39 00:02:02,520 --> 00:02:04,960 Speaker 2: that price is kind of the implied probability of everybody 40 00:02:05,000 --> 00:02:08,160 Speaker 2: who's trying to buy or sell those shares, So it's 41 00:02:08,200 --> 00:02:10,640 Speaker 2: not quite you know, if the majority of saying this 42 00:02:10,800 --> 00:02:13,960 Speaker 2: or that, but basically the liquidity in the markets underneath 43 00:02:14,000 --> 00:02:15,120 Speaker 2: them so who. 44 00:02:14,919 --> 00:02:17,919 Speaker 1: Are the big players in these markets then, and why 45 00:02:17,960 --> 00:02:20,200 Speaker 1: have they become so popular in recent months. 46 00:02:20,560 --> 00:02:22,880 Speaker 2: The two big platforms that we talk about now in 47 00:02:22,880 --> 00:02:26,320 Speaker 2: prediction markets are known as poly market and Calshi. They're 48 00:02:26,360 --> 00:02:29,320 Speaker 2: both based in the US, so they do operate quite differently. 49 00:02:29,400 --> 00:02:32,960 Speaker 2: Calshi as a US regulated venu, whereas poly market operates offshore, 50 00:02:33,160 --> 00:02:35,880 Speaker 2: though it will soon have a US regulated venue as well. 51 00:02:36,120 --> 00:02:38,839 Speaker 2: They've become really big talking points in the last few 52 00:02:38,840 --> 00:02:41,720 Speaker 2: months or even the last year, because while prediction markets 53 00:02:41,720 --> 00:02:43,280 Speaker 2: have been around, I mean, if you think all the 54 00:02:43,320 --> 00:02:45,960 Speaker 2: way back to the early nineteen hundreds with election betting, 55 00:02:46,000 --> 00:02:48,000 Speaker 2: that's kind of one of the earliest examples we have. 56 00:02:48,280 --> 00:02:50,799 Speaker 2: Prediction markets have been around for a while, but they 57 00:02:50,840 --> 00:02:54,320 Speaker 2: weren't really key touch points until we started looking at 58 00:02:54,360 --> 00:02:58,239 Speaker 2: the twenty twenty four US presidential election, when people who 59 00:02:58,240 --> 00:03:00,880 Speaker 2: are trading on poly market or calsh she you could 60 00:03:00,919 --> 00:03:04,160 Speaker 2: see odds for Republican victories that just seem very different 61 00:03:04,200 --> 00:03:07,120 Speaker 2: to what polling data would tell you. They were predicting 62 00:03:07,160 --> 00:03:10,399 Speaker 2: a Trump when long before polls suggested that was going 63 00:03:10,440 --> 00:03:13,160 Speaker 2: to happen, And that's somewhere where then traders were looking 64 00:03:13,200 --> 00:03:15,720 Speaker 2: for that kind of information and ultimately they were proven right. 65 00:03:16,440 --> 00:03:19,080 Speaker 1: How are these prediction markets regulated then. 66 00:03:19,560 --> 00:03:24,480 Speaker 2: So for Calshi, it's regulated as a CFTC derivatives exchange, 67 00:03:24,520 --> 00:03:26,400 Speaker 2: so it's seen as the same way as if you 68 00:03:26,440 --> 00:03:30,440 Speaker 2: were buying futures or options on commodities like bitcoiner oil. 69 00:03:30,520 --> 00:03:33,280 Speaker 2: For someone like CME Group, it's regulated in much the 70 00:03:33,320 --> 00:03:36,600 Speaker 2: same way. These are structured as financial derivatives contracts, and 71 00:03:36,640 --> 00:03:38,960 Speaker 2: that's what enables them to not be viewed in the 72 00:03:39,080 --> 00:03:42,080 Speaker 2: US anyway. Is the same as sports bedding or gambling 73 00:03:42,120 --> 00:03:45,320 Speaker 2: that which is overseen by the States. For polling market, 74 00:03:45,320 --> 00:03:47,600 Speaker 2: it's a little bit different because it operates offshore. It's 75 00:03:47,600 --> 00:03:50,720 Speaker 2: settled with the CTC in twenty twenty two and promised 76 00:03:50,760 --> 00:03:53,320 Speaker 2: to not serve US traders as part of that, and 77 00:03:53,520 --> 00:03:55,880 Speaker 2: it will soon have a US regulative venue that operates 78 00:03:55,880 --> 00:03:58,760 Speaker 2: in a similar way to Calcy, but just for sports bets. 79 00:03:58,800 --> 00:04:01,680 Speaker 2: So that's how it's regular in the US. Elsewhere it's 80 00:04:01,720 --> 00:04:05,040 Speaker 2: a lot more tricky. We don't have clear regulation as 81 00:04:05,040 --> 00:04:07,120 Speaker 2: we do in the US, and kind of countries across 82 00:04:07,120 --> 00:04:10,160 Speaker 2: Europe or even across Asia for prediction markets. But there 83 00:04:10,160 --> 00:04:12,040 Speaker 2: are countries that have kind of come out and said, well, 84 00:04:12,080 --> 00:04:15,200 Speaker 2: we think this might be gambling. So poly Market, for example, 85 00:04:15,320 --> 00:04:18,440 Speaker 2: was banning countries like France last year over some of 86 00:04:18,480 --> 00:04:21,840 Speaker 2: these issues, and that has delineated those as gambling in 87 00:04:21,839 --> 00:04:22,320 Speaker 2: that sense. 88 00:04:22,720 --> 00:04:24,880 Speaker 1: Well, is it felt that there are risks then for 89 00:04:24,960 --> 00:04:28,039 Speaker 1: the public with these platforms in these markets, As. 90 00:04:27,839 --> 00:04:29,920 Speaker 2: With any high risk investment, you know what you put 91 00:04:29,920 --> 00:04:32,720 Speaker 2: in could always go down, and especially in something like crypto, 92 00:04:32,800 --> 00:04:34,279 Speaker 2: which is what I write about most of the time, 93 00:04:34,320 --> 00:04:37,400 Speaker 2: it's very common knowledge that like everything you put in 94 00:04:37,440 --> 00:04:39,720 Speaker 2: could go to zero very quickly, and it's a high 95 00:04:39,800 --> 00:04:42,240 Speaker 2: risk bet. So in that sense there is a risk, 96 00:04:42,480 --> 00:04:44,280 Speaker 2: just the same as with gambling as well, there's always 97 00:04:44,320 --> 00:04:47,640 Speaker 2: a risk. The difference I guess with prediction markets is that, 98 00:04:48,279 --> 00:04:51,560 Speaker 2: whereas in the sports betning world or the gambling world, 99 00:04:51,600 --> 00:04:54,159 Speaker 2: you might have some level of consumer protections in place, 100 00:04:54,160 --> 00:04:57,039 Speaker 2: platforms are required to do things like not allow you 101 00:04:57,080 --> 00:05:00,000 Speaker 2: to bet using credit, or they might have certain protecttion 102 00:05:00,200 --> 00:05:02,719 Speaker 2: some place that say you can limit yourself from doing 103 00:05:02,760 --> 00:05:04,599 Speaker 2: it more than certain number of hours in a day 104 00:05:04,680 --> 00:05:06,839 Speaker 2: or a certain number of times a week. That doesn't 105 00:05:06,880 --> 00:05:09,360 Speaker 2: exist in prediction markets at all, because it's seen as 106 00:05:09,360 --> 00:05:12,359 Speaker 2: a financial product, and so there are different kinds of 107 00:05:12,400 --> 00:05:15,960 Speaker 2: protections involved for consumers, but ultimately the risk in it 108 00:05:16,000 --> 00:05:16,800 Speaker 2: is still the same. 109 00:05:17,320 --> 00:05:19,200 Speaker 1: Well, given then that it is being viewed as a 110 00:05:19,240 --> 00:05:22,040 Speaker 1: financial product by regulators in certain parts of the world, 111 00:05:22,160 --> 00:05:25,080 Speaker 1: how is the financial world responding to these markets? 112 00:05:25,560 --> 00:05:28,480 Speaker 2: They've been responding in a big way, actually. So Kaushi 113 00:05:28,680 --> 00:05:31,919 Speaker 2: was also challenged by the CATC over its contracts a 114 00:05:31,920 --> 00:05:34,600 Speaker 2: couple of years ago, and it won that case last year, 115 00:05:34,600 --> 00:05:36,719 Speaker 2: which is what enabled it to offer contracts tied to 116 00:05:36,800 --> 00:05:39,440 Speaker 2: the presidential election at the end of the year. And 117 00:05:39,520 --> 00:05:41,840 Speaker 2: because it won that case, that kind of opened up 118 00:05:42,160 --> 00:05:44,960 Speaker 2: a huge set of precedents that financial firms could glom 119 00:05:45,080 --> 00:05:46,839 Speaker 2: onto and say, well, we can offer these kinds of 120 00:05:46,839 --> 00:05:49,400 Speaker 2: things too. So we've seen a bunch of different names 121 00:05:49,440 --> 00:05:51,640 Speaker 2: come out and want to be offering prediction markets. Some 122 00:05:51,680 --> 00:05:54,240 Speaker 2: of the highest profile ones of companies like robin Hood, 123 00:05:54,320 --> 00:05:57,160 Speaker 2: which offers contracts to users that some of which are 124 00:05:57,200 --> 00:05:59,359 Speaker 2: kind of offered by Kaushi underneath, so it provides the 125 00:05:59,360 --> 00:06:01,560 Speaker 2: tech while robin is kind of the front end. But 126 00:06:01,600 --> 00:06:03,880 Speaker 2: we also have some others also providing contracts too. So 127 00:06:03,960 --> 00:06:08,080 Speaker 2: CME Group offers prediction markets contracts and it's heavily expanding. 128 00:06:08,120 --> 00:06:10,760 Speaker 2: We've even seen companies kind of get involved on the 129 00:06:10,760 --> 00:06:13,520 Speaker 2: investment side as well. So Ice Switches that operated the 130 00:06:13,520 --> 00:06:15,960 Speaker 2: New York Stock Exchange pledged to invest as much as 131 00:06:16,000 --> 00:06:18,679 Speaker 2: two billion in poly market earlier this year, and they're 132 00:06:18,720 --> 00:06:22,120 Speaker 2: also seeing great demand from their clients on wanting prediction 133 00:06:22,240 --> 00:06:25,240 Speaker 2: markets technology in their products. Well. 134 00:06:25,279 --> 00:06:27,719 Speaker 1: Seeing that rush of interest and rush of money into 135 00:06:27,760 --> 00:06:30,680 Speaker 1: this area as well, what kind of predictions could we 136 00:06:30,720 --> 00:06:32,520 Speaker 1: make about the future of these markets. 137 00:06:33,520 --> 00:06:36,840 Speaker 2: It definitely seems like it's set for like a really 138 00:06:36,920 --> 00:06:38,720 Speaker 2: large amount of growth in the next few months or 139 00:06:38,760 --> 00:06:41,640 Speaker 2: even a year anyway. So there is that side of things. 140 00:06:41,680 --> 00:06:43,159 Speaker 2: I mean, if you think about all the investment that 141 00:06:43,200 --> 00:06:45,240 Speaker 2: these financial firms are putting into, it is bound to 142 00:06:45,279 --> 00:06:48,320 Speaker 2: be growing quite a bit bigger over the next few months. 143 00:06:48,560 --> 00:06:50,120 Speaker 2: On the other hand, though, there is still a big 144 00:06:50,200 --> 00:06:52,839 Speaker 2: legal battle, particularly in the US, so quite a few 145 00:06:52,880 --> 00:06:56,200 Speaker 2: states have been challenging CALSHE in particular over whether or 146 00:06:56,279 --> 00:06:59,240 Speaker 2: not it should be viewed as gambling and falling under 147 00:06:59,279 --> 00:07:02,480 Speaker 2: sports spending rules, even if it has this kind of 148 00:07:02,520 --> 00:07:05,880 Speaker 2: backstop of being CFTC regulated. That is a really big 149 00:07:05,960 --> 00:07:08,320 Speaker 2: legal showdown that's happening at the minute. There are a 150 00:07:08,400 --> 00:07:10,800 Speaker 2: number of lawsuits going on across quite a few states, 151 00:07:11,120 --> 00:07:13,640 Speaker 2: and also the i mean the trade groups that represent 152 00:07:13,680 --> 00:07:16,360 Speaker 2: the sports betting and casino groups are obviously not very 153 00:07:16,360 --> 00:07:19,000 Speaker 2: happy about this either. So we're definitely going to see 154 00:07:19,000 --> 00:07:21,040 Speaker 2: a lot more action happening there in the next year 155 00:07:21,160 --> 00:07:21,880 Speaker 2: or so. 156 00:07:21,960 --> 00:07:25,040 Speaker 1: We plenty to watch then on future developments. Emily Nicole, 157 00:07:25,080 --> 00:07:29,040 Speaker 1: our digital finance reporter. Thank you. For more explanations like 158 00:07:29,080 --> 00:07:31,840 Speaker 1: this from our team of three thousand journalists and analysts 159 00:07:31,840 --> 00:07:34,960 Speaker 1: around the world, go to Bloomberg dot com slash explainers. 160 00:07:36,880 --> 00:07:39,560 Speaker 1: I'm Stephen Carroll. This is here's why. I'll be back 161 00:07:39,600 --> 00:07:41,440 Speaker 1: next week with more. Thanks for listening.