Hours before U.S. missiles struck Tehran on Saturday, February 28, six Polymarket accounts placed bets that military action would begin. They were bang on the money right. Together, they raked in $1.2 million, with one account turning $61,000 into nearly $493,000—a whopping 821% return. Most of these accounts were created and funded within 24 hours of the strikes. The whiff stench of insider trading is unmistakable.
This was no isolated incident. Similar patterns emerged in January, when freshly created accounts netted over $400,000 betting on the capture of Venezuelan President Nicolás Maduro, just hours before the operation went public.
This couldn’t have come at a worse time for Kalshi and Polymarket, which are facing a growing number of lawsuits demanding that prediction markets be regulated like gambling. With war-related betting stirring up scandal, a group of congressional Democrats has put forward the “Prediction Markets are Are Gambling Act”— legislation that seeks to ban prediction market bets on elections, government actions, war and sports. They are making a big mistake.
Prediction markets haven’t created the insider trading problem out of thin air. It has been an unsavory feature of financial markets for many a decade for decades. What Kalshi and Polymarket have done is drag this dirty secret out into the open with the help of transparent and immutable blockchain technology. Crypto transactions are recorded on a ledger that anyone can see and cannot be altered or obfuscated. This makes prediction markets the most useful and precise tool for eradicating exposing insider trading that has ever existed—a tool Congress should rely on heavily, not legislate out of existence.
Following the Breadcrumbs
Regulators already see the opportunity. On February 25, the CFTC’s Division of Enforcement issued a formal advisory after two cases of insider trading on Kalshi. The Commission is currently collecting public comments on how these markets should be regulated. But it’s clear that prosecution is the next step. As U.S. Attorney for the Southern District of New York Jay Clayton put it, “because it’s a prediction market doesn’t insulate you from fraud,” and federal prosecutors have since met directly with Polymarket to explore charges.
But prosecution in this area is only possible if these markets are allowed to function, unmasking insider trading that has, until now, largely happened behind closed doors. The system, as it currently stands, makes insider trading prosecution incredibly difficult. Perhaps that’s why no member of Congress—not even Nancy Pelosi, whose husband’s suspiciously well-timed trades became a national scandal—has ever been prosecuted for profiting off from privileged information.
Prediction markets, for the first time, create a trail of breadcrumbs that is hard to ignore. Timestamped, public, and—crucially—independent of established institutions. That independence matters: no institutional pressure can make inconvenient data disappear. No amount of political pressure can erase transactions on the blockchain. And so prediction markets, for all their flaws, can lead directly to the doorstep of those profiting from privileged information—prosecutors need only follow the breadcrumbs.
Nowhere to Hide
This isn’t theoretical. A recent, concrete example proves it can be done. In February, an Israeli Air Force reservist was indicted, along with an alleged accomplice, on suspicion of placing bets on Polymarket based on classified information about the 12-day Israel-Iran war in June 2025.
Less than a year from wrongdoing to prosecution. That’s a faster timeline than virtually any comparable insider trading case in traditional finance.
And it doesn’t even require sophisticated infrastructure. Independent blockchain analysts like ZachXBT and Bubblemaps are already tracing these transactions voluntarily. In the latest case of war-related betting, Bubblemaps quickly identified that the funds came from a wallet called “nothingeverhappens911,” which was connected to another account called “Skoobidoobnj” through a shared Binance deposit address—and this account turned out to be connected to two further Polymarket accounts that placed similar trades. Little by little, the walls are closing in.
Granted, these are obviously anonymous accounts. There are ways traders can obfuscate their transactions and hide their locations. They can use crypto mixers in an attempt to “wash” the funds. In short, they can make prosecutors’ lives difficult. But many things can’t be hidden on-chain: funding patterns, timing of entry, fund flows, and connected wallet addresses. And if a bunch of independent enthusiasts can uncover this much information with public tools, this fast, imagine what a properly coordinated and resourced regulatory effort could achieve.
Eradicate It Once and For All
Yes, prediction markets gave insiders an opportunity to profit from disaster. But it would be naive to think that this hasn’t happened in the past. This time, however, we know exactly which bets were placed, when, and how much profit was made.
Now it’s time to follow the breadcrumbs to find the missing piece of the puzzle: the identity of these traders. The CFTC is ready to move, the forensic tools already exist, and the April 30 public comment deadline on prediction market regulation is an open invitation to get this right. Fund the enforcement, strengthen the penalties, mandate identity verification above meaningful trading thresholds—but keep prediction markets open. Congress should lean into this opportunity, instead of killing the very tool that shines a light on a problem they have struggled to eradicate for decades.
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