Washington’s Crypto Crackdown: Is This The End For Prediction Markets? — Why Congress Suddenly Cares

WASHINGTON — A sudden legislative move threatens to cripple cryptocurrency prediction markets, with two separate acts introduced Wednesday banning congressional staff, members, and federal officials from trading on such platforms — one taking effect immediately, signaling a potential 10% market correction as regulatory uncertainty spreads through digital asset sectors.

Massachusetts Bans Crypto Prediction Market

Washington’s battle against prediction markets rages on. Following a bipartisan Senate bill introduced on Monday that targets sports‑style bets on platforms like Polymarket and Kalshi, democratic representative Seth Moulton of Massachusetts (MA-06) formally banned all of his staff from “participating in prediction markets”, such as the aforementioned, “to trade or hold positions on political, legislative, regulatory, geopolitical outcomes, or any information that is learned in an official capacity”. The press release frames it as the first such explicit office-wide ban in Congress.

Moulton’s rationale is clear: staff are meant to serve constituents, not profit from policy choices and global events. As he views it, prediction markets have become ethically questionable “playgrounds for corrupt insiders”:

Prediction markets have become a playground for corrupt insiders who are able to place bets on things like election outcomes, wars, and even the deaths of public figures. This is creating a perverse incentive structure that poses a genuine threat to American society today.

Congressional staff and the Members they work for exist to serve the constituents of the districts they represent, not to profit off of the very policy decisions and world events that we are here to respond to.

On Nebraska’s side, Congressman Adrian Smith (R-NE-03) and Congresswoman Nikki Budzinski (D-IL-13) introduced the Preventing Real-time Exploitation and Deceptive Insider Congressional Trading Act (PREDICT Act), another bipartisan effort that aims to ban members of Congress, their spouses and children, the president and vice president, and senior appointees from trading on political and policy outcome markets.

Their core argument and statement are very similar to Moulton’s. Recent episodes of little‑known traders making massive profits on contracts tied to war with Iran or the length of government shutdowns have sharpened fears about insider information leaking into these markets. Smith said:

Serving the American people is a privilege, not a pathway to profit. Our commonsense, bipartisan bill will give Americans confidence that the decisions of their elected officials are guided by merit, not personal profit.

Budzinski added:

 The American people are tired of politicians using their influence for personal gain, and the rise of prediction markets has made those concerns even more relevant. In recent months, we’ve seen instances of little-known traders making massive profits on events ranging from war with Iran to how long a government shutdown will last, raising necessary questions about the use of inside information.

Breaking the PREDICT Act would trigger a civil fine equal to 10% of the value of the banned trade, plus a requirement to hand over all profits from it to the U.S. Treasury, the announcement states.

These new episodes come on top of earlier efforts like Rep. Ritchie Torres’s Financial Prediction Markets Public Integrity Act, following the capture of Venezuela’s former dictator Nicolás Maduro, which also targeted insider trading on platforms such as Polymarket.

For on‑chain and offshore prediction markets, a hard ban on US officials could actually de‑risk the space by reducing headline “insider” scandals, but it also raises the odds of stricter KYC and monitoring requirements in the US.

As it becomes increasingly clear that Washington has its attention set on ethically questionable crypto ventures, it is not too far-fetched to think that similar logic could be extended to other high‑beta crypto venues where policy and profit visibly collide (e.g., tokens tightly linked to election or war outcomes). Traders would do well pricing in regulatory overhang alongside usual market risk.

Cover image from Perplexity, BTCUSD chart from Tradingview