As Traders Reap Millions from Bets on the Iran Strike, Questions of Morality, Legality, and National Security Collide
As bad behaviour in finance goes, the idea of insiders betting on the US and Israel attacking Iran is about as appalling as it gets. Cashing in on death and destruction across West Asia—or anywhere else—would be despicable under any circumstances. But beyond the moral dimension, there is also the issue of national security. Given that handing such information to an enemy would be an act of treason, should risking intelligence leaks through price signals be seen as any less traitorous?
These are not hypothetical questions. They are urgently real. When the US struck Iran on Saturday, the event had already been the subject of extensive wagering on prediction markets. More than $500 million had been staked on Polymarket about the timing of a US strike. Six players who reaped combined profits of $1 million by correctly anticipating a February 28 attack were new accounts that had only ever put wagers on the US bombing the country.
The implications are staggering. Either these traders possessed extraordinary foresight, or they had access to information that the general public did not. And if they had access to such information, the questions multiply: Who were they? How did they obtain it? And what does their ability to profit from it say about the security of some of the most sensitive deliberations in global affairs?
The Rise of Prediction Markets
Prediction markets have grown from fringe curiosities to major financial players in a remarkably short time. Combined weekly volumes on Kalshi and Polymarket, the two biggest venues by far, exceeded $5 billion at the end of February, according to data compiled by Dune Analytics. Polymarket has been valued at $9 billion and is backed by the New York Stock Exchange parent Intercontinental Exchange, among others. Kalshi has a valuation of $11 billion.
These are not tiny upstarts that governments can ignore. They are significant financial institutions with substantial backing, sophisticated technology, and global reach. They operate in a regulatory grey zone—Polymarket’s offshore business isn’t overseen by the Commodity Futures Trading Commission (CFTC), and it allows accounts to use crypto-wallets, which aid anonymity.
The premise of prediction markets is simple and, in the abstract, defensible. They allow people to bet on the outcomes of future events—elections, economic indicators, sports results. The collective wisdom of traders, aggregated through market prices, can provide remarkably accurate forecasts. In some contexts, this is valuable information. But when the events being wagered on involve military action, national security, and potential loss of life, the calculus changes dramatically.
The Pattern of Suspicious Trades
The Iran wagers are not an isolated incident. They fit a troubling pattern of dubious trades on prediction markets that has attracted increasing public scrutiny.
In January, a new account on Polymarket won more than $400,000 by correctly forecasting America’s raid on Venezuela and the capture of its president, Nicolás Maduro. The operation came out of the blue, surprising most observers. Yet someone—or some algorithm—was confident enough to place substantial bets on its occurrence.
That followed many other dubious-looking trades on a variety of events where someone could know the outcome before it was public. The pattern is consistent: new accounts appear, place concentrated bets on specific outcomes, and win big when those outcomes materialize. The accounts then often disappear, their anonymity protected by cryptocurrency and the platforms’ limited disclosure requirements.
Last month, Kalshi confirmed that bad behaviour does happen when it sanctioned an editor who worked on the YouTube channel of MrBeast for a series of winning wagers on the upcoming contents of the show. Also in February, it gave Kyle Langford, a Republican candidate for California governor, a slap on the wrist for a publicity stunt where he bet on his own win last May.
These are relatively minor infractions—entertainment content and self-promotion. But they demonstrate that the platforms are vulnerable to manipulation and that some traders are willing to use inside information for profit. If people will cheat to win bets on YouTube videos, what might they do when the stakes involve military action and national security?
The Insider Trading Problem
After Kalshi’s internal enforcement of these two cases, the CFTC issued a statement reminding everyone that it has the authority to police illegal trading on prediction markets. The watchdog should get on with its job; it takes resources and investigative powers to properly crack down on rulebreakers.
But the CFTC faces significant challenges. Polymarket’s offshore status limits its reach. The use of crypto-wallets obscures identities. And the international nature of these markets means that traders can operate from jurisdictions where US law enforcement has limited authority.
The six winning accounts that profited from the Iran strike were new and had only ever placed wagers on the US bombing the country. This is precisely the pattern that raises red flags. It is possible, of course, that these were simply lucky traders who read public signals correctly. There was roughly $25 million wagered on February 27 as the day of US strikes; one of the six winning accounts lost about $300 on that bet, according to Bloomberg News. These people could have been looking at public information.
But the cumulative pattern—multiple wins on surprise events by anonymous new accounts—strains credulity. The simplest explanation is often the correct one: some of these traders had access to non-public information.
The National Security Dimension
Allowing these kinds of bets with the possibility of insiders is not just bad; it is dangerous. Imagine if Iranian leaders had interpreted the ramping up of bets on a US strike as a credible signal and launched pre-emptive attacks on US assets or Israel first. The consequences could have been catastrophic.
This is not alarmist speculation. Just last week, Israel filed charges against two people accused of using classified information to make bets on Polymarket related to Israel’s security operations. If insiders can profit from their knowledge, and if those profits create visible price signals, then enemies can potentially read those signals and act on them.
The problem is twofold. First, there is the direct damage: individuals with access to classified information are betraying their trust and potentially their country for financial gain. Second, there is the indirect damage: even if no actual leaks occur, the existence of betting markets creates the possibility that price movements could be misinterpreted as signals, leading to miscalculation and escalation.
In an already tense region, where every action is scrutinised for meaning, the addition of market-based signals could be the spark that ignites a wider conflagration.
The Moral Dimension
Beyond the national security concerns lies a simpler moral question: should we be betting on war at all?
Prediction markets already face questions about propriety after a string of dubious trades attracted public scrutiny. But the deeper issue is whether some events are simply too consequential, too fraught with human suffering, to be treated as gambling opportunities.
Polymarket also hosts trades on whether a nuclear bomb will be detonated in Ukraine this year. This is not a game. A nuclear detonation would mean mass death, environmental catastrophe, and potentially the end of the post-1945 taboo that has constrained the use of the most destructive weapons ever devised. Yet on Polymarket, it is just another market, another set of odds, another opportunity to profit.
Legitimate needs to hedge financial or commodity risks are already well-served by existing futures and options markets. Companies that need to protect against oil price spikes can do so through established exchanges with robust regulation and oversight. No one needs these wild-west binary bets.
What Should Be Done
Everyone involved here ought to be thinking about much more than their own reputations. The platforms, their investors, and governments must all do more to properly stamp out the potential for insider trading. But regardless of financial crime, Kalshi and Polymarket should just cease making markets in military action and war.
This is not an impossible ask. They can choose what markets to offer. They can decide that some things are more important than profits. They can draw a line between acceptable speculation—on elections, on economic indicators, on sports—and unacceptable gambling on life-and-death matters.
The CFTC should use its authority to investigate suspicious trades and, where evidence warrants, prosecute those responsible. But enforcement after the fact is not enough. Prevention is better. And prevention means not offering these markets in the first place.
Governments should also consider whether new legislation is needed to close the regulatory gaps that allow offshore platforms to operate with impunity. If US citizens can use crypto-wallets to bet anonymously on sensitive events through platforms outside US jurisdiction, then existing laws are inadequate.
Conclusion: The Line That Should Not Be Crossed
The Iran strike wagers represent a new and troubling frontier in the intersection of finance, technology, and national security. They demonstrate that prediction markets have grown too large and too influential to be treated as harmless curiosities. They show that the profit motive, when combined with anonymity and insufficient oversight, can lead to behaviour that is not just unethical but potentially dangerous.
The individuals who profited from correctly anticipating the strike may be lucky traders, or they may be something else entirely. We may never know, because the combination of offshore platforms and crypto-anonymity makes investigation extraordinarily difficult. But the uncertainty itself is damaging. It erodes trust in the integrity of these markets and raises questions about what other sensitive information might be leaking out through price signals.
Kalshi and Polymarket have a choice. They can continue to offer markets on war and military action, risking further scandals, further suspicions, and potentially catastrophic misinterpretations of their price movements. Or they can draw a line, recognising that some things are more important than growth and valuation.
The morally defensible choice is clear. Whether they will make it remains to be seen.
Q&A: Unpacking the Controversy Over War Betting Markets
Q1: What happened with prediction markets regarding the Iran strike?
A: More than $500 million had been staked on Polymarket about the timing of a US strike against Iran before it occurred on Saturday. Six players who reaped combined profits of $1 million by correctly anticipating a February 28 attack were new accounts that had only ever put wagers on the US bombing the country. This pattern raised suspicions of insider trading—that individuals with advance knowledge of the strike used that information to profit through anonymous betting accounts.
Q2: How big have prediction markets become, and why does their size matter?
A: Prediction markets have grown dramatically. Combined weekly volumes on Kalshi and Polymarket, the two biggest venues, exceeded $5 billion at the end of February. Polymarket is valued at $9 billion and backed by the New York Stock Exchange parent Intercontinental Exchange; Kalshi is valued at $11 billion. Their size matters because they are no longer tiny upstarts that governments can ignore. They have become significant financial institutions whose price signals could potentially be read as intelligence by adversaries, and whose vulnerability to insider trading raises national security concerns.
Q3: What other suspicious trades have occurred on these platforms?
A: In January, a new account on Polymarket won more than $400,000 forecasting America’s surprise raid on Venezuela and capture of its president Nicolás Maduro. This followed many other dubious-looking trades on events where someone could know the outcome before it was public. Last month, Kalshi sanctioned an editor who worked on the MrBeast YouTube channel for winning wagers on upcoming show contents. It also penalized a California gubernatorial candidate for betting on his own win—a publicity stunt that nonetheless demonstrated the platforms’ vulnerability to manipulation.
Q4: What are the national security implications of these betting markets?
A: The national security implications are serious and multifaceted. If insiders with access to classified information are betting on military actions, they are betraying their trust and potentially committing treason. Additionally, price movements on these markets could be interpreted by adversaries as signals of impending action. Imagine if Iranian leaders had interpreted the ramping up of bets on a US strike as a credible signal and launched pre-emptive attacks. Just last week, Israel filed charges against two people accused of using classified information to make bets on Polymarket related to Israel’s security operations.
Q5: What should be done about prediction markets offering wagers on war and military action?
A: Multiple actions are needed. First, platforms like Kalshi and Polymarket should voluntarily cease offering markets on military action and war—drawing a moral line that some things are too consequential to be treated as gambling opportunities. Second, regulators like the CFTC should use their authority to investigate suspicious trades and prosecute wrongdoing. Third, governments may need new legislation to close regulatory gaps that allow offshore platforms to operate with impunity, particularly those using crypto-wallets that aid anonymity. Legitimate hedging needs are already served by existing futures and options markets; no one needs these wild-west binary bets on life-and-death matters.
