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You could cut the tension in the room with a knife. That’s how it was described when CFTC Chairman Michael Selig went in front of the House Committee on Agriculture for a recent hearing.
Things got tense, especially when the subject of prediction markets came up. Selig routinely deflected questions, saying the CFTC is barely setting rules and regulations for the new markets, and everything is under consideration.
Of course, the legal betting industry is watching with a watchful eye. For one, the sports betting apps want to know if prediction markets will continue to eat up market share from them. Then there are tribes that don’t want prediction markets threatening their state sovereignty and betting monopolies.
California tribes definitely fall in the latter category. They fought tooth and nail to keep commercial sportsbooks out of the California betting market in the 2022 elections, and now they’re prepared for a similar fight against prediction markets. But it might not be in their control, at least not as much as it is Selig’s control.
Keep on reading, and we’ll recap you on Selig’s bombshell appearance on Capitol Hill — what happened and potential long-term implications.
Insider Trading Panic Is Growing
$950 million — that’s how much insiders are believed to have front-run news of an Iran-U.S. ceasefire in March. Multiple investors, on fresh prediction market accounts, made bets on oil prices hours before Donald Trump announced the ceasefire. One could say it’s a mere coincidence, but a similar thing happened months earlier with another world event influenced by Trump.
When Nicolas Madura was ousted as Venezuela’s president, a new Polymarket trader made massive bets he’d be out by January 31 (an outcome that had huge odds saying no at the time). These bets came days and hours before a Trump-ordered attack was executed and Maduro was captured. Again, maybe it’s a coincidence, but we see this pattern over and over again on Trump-related news.
Committee members grilled Selig over and over on the issue. To his credit, Selig made his stance on the potential issue abundantly clear:
“I want to be crystal clear to anyone who engages in fraud, manipulation or insider trading in any of our markets: we will find you, and the full force of the law will come to bear,” Selig said during the hearing. “Nothing is more important than protecting market integrity, and that’s why I’ve been diligently working to reinvigorate our enforcement division and upgrade our surveillance tools to meet the challenges of our growing markets.”
Selig also said he’s investigating some cases, but stayed mum on the details. But the biggest question is this: just how equipped is the CFTC to do so? Its annual budget is $400 million, a rounding error compared to some government departments. Worse, they’re not the best staffed, as we’ll get into later in the article.
Rule-Making Process Is Underway
Outside the issue of insider trading, prediction markets are under scrutiny from states, sports betting apps, and tribes for offering pseudo sports betting on their platforms. It’s true, you can go to Polymarket right now and throw money on the outcome of NBA playoff games.
But these sites and the CFTC contend this isn’t traditional sports betting. Instead, they are “event contracts” and more akin to stock option trading than NBA betting. Of course, opponents laugh at that notion.
As mentioned before, Selig didn’t offer a lot of perspective on the is-it-sports-betting-or-not question. All he did was say the FCTC is in the process of creating a rule structure for the nascent market, which they are.
Officially, the agency began its rule-making process in the middle of March. It gave outsiders a month to submit comments, and over 800 have come in from all sides — regular everyday people, interest groups, politicians, and tribes. Everyone has a say on what prediction markets should and should not be allowed to take money on.
Comments will be allowed to continue to trickle in this month. After that, it’s on Selig and staff to digest it all and propose their own rules. But… are they even equipped to do that? Let us explain in the next section.
CFTC Is Currently Understaffed
We said the CFTC didn’t have the biggest budget to start with. Welp, they don’t exactly have manpower either. Get this, Selig is the only sitting commissioner in the organization. Typically, there are five. Others have left, little by little, since Trump took office.
Creating rules and regulations on this industry — something that’ll be applied at the federal level — sure feels like a lot of work for one man, don’t it? Welp, Selig says he has some help on the matter.
“We are utilizing new tools from AI to automation and other surveillance systems that we’re building out, and we take this responsibility very seriously, I assure you,” Selig said.
We hope Selig has the new Claude Mythos model — ya know, the one that’s being kept under wraps because it’s supposedly too powerful — because he’ll need all the power he can find to handle this issue. The fate of an entire industry is on the shoulders of one man and his chatbot(s)…
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