The European Securities and Markets Authority (ESMA) issued a crucial advisory on July 3, reminding prediction market companies that any product functioning like a binary option will be treated as such under EU regulations. This warning arrives amid the rapid expansion of global prediction market trading, which has recently surged past $50 billion monthly.
Since May 2018, the EU has maintained a ban on binary options for retail investors, a measure that was initially temporary but has since been solidified into permanent legislation by most member states. ESMA clarified that the legal classification of financial products hinges on their operational characteristics rather than their marketing labels. Therefore, any contract that provides a fixed payout based on the occurrence of future events is classified as a financial instrument, thus subjecting it to existing regulatory restrictions.
Implications for Crypto Platforms
The consequences of this ruling are immediate and significant for crypto-based prediction market platforms. Any platform offering binary outcome contracts to retail users within the EU is currently violating established financial regulations, irrespective of whether those transactions are conducted on a blockchain. This ruling effectively locks out approximately 450 million potential retail clients from participating in these markets.
Polymarket, the leading crypto prediction market by trading volume, has previously faced regulatory challenges. Following a settlement with the Commodity Futures Trading Commission (CFTC) in 2022, the platform barred US users from trading. Now, EU retail users face similar restrictions, limiting their participation in this burgeoning market.
While ESMA refrained from naming specific platforms, its message was unequivocal: existing regulations apply universally, and the thriving prediction market sector does not provide an escape from compliance. Institutional and professional investors can still access these products, but only through firms that have obtained the necessary MiFID II authorization, making legal participation in Europe a complex and regulatory-intensive process.
Contrasting the Situation in the US
Across the Atlantic, the landscape for prediction markets is equally tumultuous. In the United States, state gaming regulators and the federal CFTC are embroiled in a contentious battle over jurisdiction regarding event contracts. As of March 2026, authorities in 11 states had initiated legal or regulatory actions against platforms such as Kalshi and Polymarket. Nevada has temporarily suspended Kalshi’s operations, while Arizona has brought criminal charges against the firm.
In April, the CFTC asserted its exclusive federal jurisdiction over prediction markets, initiating lawsuits against several states and supporting platforms like Kalshi in court. The conflict intensified recently when a Massachusetts judge allowed state authorities to amend their complaint against Kalshi, alleging that its sports contracts violate state gambling laws.
Calls from tribal gaming groups and labor organizations have prompted Congress to consider amending proposed legislation to explicitly prohibit sports-related event contracts on prediction market platforms. Legal experts suggest that this ongoing dispute could eventually escalate to the US Supreme Court.
For the time being, Europe remains entirely inaccessible to retail prediction market participants, while the regulatory landscape in the US continues to evolve without clear resolution.
