The $40 Billion Bet: Polymarket and Kalshi Chase Record Valuations While Congress Cracks Down

In the span of a single week in late February 2026, six freshly created Polymarket wallets placed bets on the timing of U.S. strikes against Iran — and walked away with $1.2 million in combined winnings. One trader, operating under the handle "Magamyman," pocketed $553,000 alone, buying shares at roughly ten cents apiece just hours before explosions lit up Tehran's skyline. By the time Congress caught wind of what had happened, prediction markets had already processed $529 million in Iran-related wagers.

Now, the two companies that facilitated those trades — Polymarket and Kalshi — are each seeking $20 billion valuations in new fundraising rounds. The collision between prediction markets' explosive growth and Washington's escalating crackdown is shaping up to be one of 2026's defining regulatory battles.

From Niche Experiment to Billion-Dollar Machines

Just two years ago, prediction markets were a curiosity. Today, they are a financial force. Polymarket and Kalshi combined for $40 billion in trading volume during 2025, and 2026 is on pace to shatter that record. In the week ending March 1, Polymarket alone surged to $2.4 billion in weekly volume — a 31.9% jump that marked its largest weekly showing since January. By March 9, weekly volume stood at $1.93 billion, the first time it overtook Kalshi's $1.87 billion.

Polymarket's February 2026 total exceeded $7 billion, a staggering 7.5x increase over the same month in 2025. On February 28 alone, the platform recorded $425 million in single-day trading volume, eclipsing the previous record of $371 million set on Election Day 2024.

Kalshi, the CFTC-regulated counterpart, recently crossed a $1 billion revenue run rate — with sources suggesting it may have climbed to $1.5 billion. Open interest sits at over $400 million for Kalshi and $360 million for Polymarket. Both platforms have moved well beyond election markets into sports, geopolitics, economics, and pop culture.

When The Wall Street Journal reported on March 7 that both firms were exploring fundraising at $20 billion valuations, the numbers seemed audacious — but not unreasonable. Kalshi was last valued at $11 billion (after a $1 billion raise in December 2025), and Polymarket at $9 billion (following a $2 billion round with NYSE backing in October 2025). The combined $40 billion target would make prediction markets one of the fastest-growing verticals in all of fintech.

The Iran Crisis: When Prediction Markets Became "Death Markets"

The catalyst for Washington's intervention was not abstract policy concern — it was the visceral reality of traders profiting from war in real time.

When the U.S. and Israel launched strikes against Iran on February 28, killing Supreme Leader Ayatollah Ali Khamenei and top military leaders, Polymarket's geopolitics markets exploded. Over half a billion dollars flowed through Iran-related contracts within days. The suspicious timing of certain trades — freshly created wallets placing highly concentrated bets hours before strikes — triggered immediate comparisons to insider trading.

This was not the first time such concerns surfaced. In January 2026, Israeli authorities charged two individuals for using classified military information to place bets on Polymarket about upcoming attacks during a 12-day conflict the previous June. The charges confirmed what critics had long feared: that prediction markets on geopolitical events create financial incentives for leaking classified information.

Senator Chris Murphy (D-Conn.) captured the mood on Capitol Hill: "It's insane this is legal. People around Trump are profiting off war and death." The political optics grew worse when it emerged that Donald Trump Jr. serves as an adviser to Polymarket, and his venture capital firm, 1789 Capital, has invested millions in the platform. The White House denied any administration-connected individuals were behind the lucrative trades, but the damage to prediction markets' public image was done.

Congress Responds: The DEATH BETS Act and a Multi-Front Legislative Assault

Washington's response has been swift and multi-pronged.

The DEATH BETS Act (March 10, 2026): Representative Mike Levin and Senator Adam Schiff introduced the Discouraging Exploitative Assassination, Tragedy, and Harm Betting in Event Trading Systems Act. The bill would prohibit any CFTC-registered exchange from listing contracts involving terrorism, assassination, war, or individual death. Crucially, it extends to contracts that could be "construed as correlating closely" to a person's death — a broad standard that could sweep in far more markets than its sponsors intend.

The DEATH BETS Act represents a philosophical shift: instead of the current permissive framework where contracts exist unless the CFTC objects, it imposes an absolute prohibition on entire categories of events.

The Moore-Carbajal Bill: Representatives Blake Moore (R-Utah) and Salud Carbajal (D-Calif.) introduced bipartisan legislation restricting prediction markets from offering contracts on war and sports — two of the highest-volume categories driving growth.

The Blumenthal-Kim Bill (March 12, 2026): Perhaps the most structurally significant legislation, this bill explicitly states that prediction markets are not exempt from state law — a direct counter to the CFTC's position that it holds exclusive regulatory jurisdiction. If enacted, it would open the door for all 50 states to regulate or ban prediction market activity.

Government Official Trading Ban: Senators proposed legislation prohibiting U.S. government officials from trading on prediction markets — a targeted response to concerns about insider knowledge being monetized on platforms like Polymarket.

The State-Level Squeeze

While Congress debates federal action, states are not waiting. The battle over whether prediction markets constitute gambling or financial instruments is playing out in courtrooms and statehouses across the country.

Utah's legislature passed a bill broadening its gambling prohibition to include wagers tied to events occurring during sporting contests. Governor Spencer Cox has signaled he will sign it. In Nevada and Massachusetts, judges have issued rulings allowing states to restrict Kalshi and Polymarket from offering sports-related markets. However, courts in New Jersey and Tennessee have ruled in Kalshi's favor, creating a patchwork of conflicting precedents.

The fundamental legal question remains unresolved: does the CFTC's oversight of prediction markets as derivatives preempt state gambling laws? The Trump-era CFTC has sided firmly with the platforms, asserting exclusive federal jurisdiction. But the Blumenthal-Kim bill and state court rulings suggest this position may not hold.

Former White House budget director Mick Mulvaney captured the tension: prediction market regulation, he argued, belongs with states, not the federal government — a position that prediction market companies strongly oppose, knowing that state-by-state compliance would be operationally devastating.

The $20 Billion Question: Can Growth Outrun Regulation?

The dueling trajectories — exponential growth versus mounting regulatory pressure — create a paradox at the heart of prediction markets' valuation story.

On the bull case: Kalshi and Polymarket have proven product-market fit at scale. Billion-dollar revenue run rates, hundreds of millions in open interest, and weekly volumes that rival established derivatives exchanges suggest these are not speculative bets on a niche product. The prediction market format has demonstrated its utility for price discovery across elections, economics, sports, and geopolitics. Institutional interest is growing — NYSE backed Polymarket's Series B, and traditional finance players are exploring integration.

On the bear case: the regulatory overhang is severe. War-related contracts — which drove some of the most spectacular volume — face potential outright bans. Sports markets, another high-growth category, face state-level gambling restrictions. The insider trading controversy has drawn attention from lawmakers who previously had no opinion on prediction markets. And the CFTC's friendly posture under Trump-era leadership could shift with any administration change.

The $20 billion valuations assume prediction markets can maintain their growth trajectory while navigating these headwinds. That is a bet in itself.

What Comes Next

Several developments will determine prediction markets' regulatory fate in the coming months:

• DEATH BETS Act committee action: Whether the bill advances from committee will signal congressional appetite for restricting event categories. The broad language around contracts "construed as correlating closely" to death could set significant precedent.

• State court consolidation: The contradictory rulings across states will likely require federal appellate clarification — or congressional resolution via the Blumenthal-Kim bill.

• CFTC enforcement posture: The commission's willingness (or reluctance) to investigate the Iran-related trading anomalies will signal whether the friendly regulatory stance can survive public scrutiny.

• Fundraising outcomes: Whether Polymarket and Kalshi actually close at $20 billion will serve as a market referendum on the sector's regulatory risk. Investors pricing in these valuations are implicitly betting that prediction markets survive their current political crisis intact.

The Bigger Picture

Prediction markets sit at an uncomfortable intersection of innovation and ethics. Their core value proposition — aggregating dispersed information into accurate probability estimates — is powerful. Academic research consistently shows prediction markets outperform polls, pundits, and models for forecasting. During the 2024 election, Polymarket's accuracy drew mainstream media attention and legitimized the format.

But the Iran crisis exposed a fundamental tension: the same market design that makes prediction markets effective at price discovery also creates financial incentives around events where such incentives feel morally indefensible. There is a meaningful difference between betting on whether the Fed will cut rates and betting on when a foreign leader will be assassinated.

The industry's challenge is existential, not operational. Polymarket and Kalshi need to convince regulators and the public that prediction markets can be the "information markets" their proponents describe — without becoming the "death markets" their critics fear. At $40 billion in combined target valuations, the stakes have never been higher.

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