The Death of Crowd Wisdom: How Insider Trading is Hijacking Prediction Markets
For years, the allure of prediction markets like Polymarket and Kalshi was the wisdom of the crowds
. The theory was simple: if you aggregate the bets of thousands of people, the resulting price becomes a more accurate forecast than any single expert’s opinion. But new data suggests a darker reality. Instead of a collective brain, these markets are increasingly becoming playgrounds for a tiny, informed elite.
Recent analysis of over 400,000 trades settled between January 2021 and March 2026 reveals a staggering disparity in accuracy. Although the average win rate across all markets hovers around 14%, a specific subset of bets—those involving military and defense actions—boast a success rate of approximately 52%.
The National Security Risk: Betting on Battlefield Secrets
When the accuracy of a bet on a military operation is nearly four times higher than the general market average, it ceases to be a “guess” and starts to look like a leak. The Financial Times has highlighted that this trend amplifies concerns over the premature leakage of classified intelligence.
The legal consequences are already manifesting. In the United States, active-duty soldier Gannon Ken Van Dyke was recently indicted for allegedly using classified information to profit from the arrest operation of Venezuelan President Nicolás Maduro. Prosecutors claim Van Dyke placed roughly 13 bets totaling $33,034 on outcomes such as U.S. Troops stationed in Venezuela
and Maduro’s resignation
, netting a profit of over $400,000.
This isn’t an isolated incident. Israel has similarly indicted reservists and civilians suspected of leveraging state secrets to place bets on national military operations. These cases underscore a systemic vulnerability: prediction markets are structurally susceptible to insider trading since the “assets” being traded are often government secrets.
“Military and defense prediction markets are structurally vulnerable to insider trading, which works to the disadvantage of the general user.” Anti-Corruption Data Collective
Follow the Money: Geopolitical Volatility as an Asset Class
The sheer volume of capital flowing into these high-risk markets indicates a growing appetite for geopolitical gambling. The scale of these bets often mirrors the scale of the real-world tension:
- U.S.-Iran Relations: Trading volume reached $63 million on whether the two nations would sign a permanent peace agreement.
- Taiwan Strait: Approximately $23 million was wagered on whether China would invade Taiwan within the year.
This financialization of conflict creates a perverse incentive. When millions of dollars are on the line, the pressure to leak information—or the reward for doing so—increases exponentially. This transforms prediction markets from forecasting tools into potential liabilities for national security.
Beyond the Battlefield: Cultural and Political Leaks
The “insider edge” isn’t limited to war zones. Information asymmetry is rampant in cultural and political spheres as well. Analysis shows that bets on cultural events—such as music releases or competition winners—have a 29% hit rate, far exceeding the general market average.
One notable example occurred just before the announcement of Nobel Peace Prize winner Maria Corina Machado. A sudden spike in online betting triggered an internal investigation by the platform to determine if the winner’s identity had been leaked prematurely. This suggests that the “leak culture” is pervasive across all forms of high-stakes forecasting.
The Fight for Market Integrity
Platforms are not ignoring these risks. Polymarket and Kalshi have sought partnerships with crypto-market surveillance firms like Solidus Labs to detect manipulation. Kalshi has taken a more aggressive stance by banning predictions involving high-violence events, including war and kidnappings
.
However, the fundamental problem may be mathematical. Research from Roberto Gomez Cram, an assistant professor of finance at the London School of Economics (LSE), suggests that the “crowd” is a myth. His findings indicate that only 3% of accounts are actually responsible for predicting prices and reacting swiftly to breaking news.
the 3% are not predicting the future; they are simply faster at processing leaked or privileged information than the other 97%.
Frequently Asked Questions
What is a prediction market?
A prediction market is a platform where people can bet on the outcome of future events, such as elections, sports, or geopolitical shifts. The market price reflects the collective probability assigned to an event.
Why is insider trading a problem in these markets?
Unlike stock markets, where insider trading is strictly regulated, prediction markets often operate in grey areas. When people with classified government or corporate data bet on outcomes, it creates an unfair environment and can signal sensitive secrets to adversaries.
Are prediction markets still useful for forecasting?
They can be, but users should treat them as “information signals” rather than absolute truths. A sudden price shift often tells you more about who knows what, rather than what is actually likely to happen.
Join the Conversation
Do you think prediction markets should be regulated like the stock market to prevent insider trading? Or is the “edge” part of the game?
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