Home / News
Prediction Market Profits Skew Heavily to Elite Few, Raising Risks for Casual Users
• A Wall Street Journal analysis reveals 67% of profits on the Polymarket prediction platform flow to just 0.1% of user accounts.
• Mention markets, betting on specific words being said on TV, saw trading volume explode from $22,000 to $117 million on Kalshi in one year.
• No prediction market exchange is currently licensed to operate in Canada, leaving users without regulatory protection.
• The Canada Revenue Agency may tax systematic prediction market winnings as business income, not as tax-free gambling windfalls.
The explosive growth of prediction markets, where users bet on event outcomes from elections to celebrity speeches, presents a stark reality: the vast majority of profits are consolidated among a tiny, sophisticated elite, while most participants lose money. New data and regulatory scrutiny highlight significant financial and legal risks, particularly for Canadian users navigating an unlicensed grey market.
An in-depth analysis by The Wall Street Journal uncovered a profoundly uneven playing field. On the Polymarket platform, a mere 0.1% of accounts capture 67% of all profits, with over 1.1 million of the 1.6 million accounts studied being unprofitable. This concentration of gains underscores that these platforms, often marketed as accessible, function more like arenas where professional traders outperform casual participants. The niche "mention market" segment, where bets are placed on specific words being uttered on television, exemplifies the sector's volatility and susceptibility to potential insider manipulation. Trading volume for these markets on Kalshi ballooned from US$22,000 in January 2025 to US$117 million just one year later, despite high-profile incidents highlighting their vulnerability.
For Canadians, engagement carries distinct hazards due to a complex and prohibitive regulatory landscape. No prediction market exchange currently holds a license to operate in Canada. While platforms like Kalshi explicitly block Canadian residents, others like Polymarket remain technically accessible via cryptocurrency wallets but operate in a legal grey zone, explicitly banned in Ontario. The Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada have clarified that event contracts are subject to existing securities laws, meaning unlicensed trading may violate regulations. Furthermore, a critical and often overlooked risk is taxation. The Canada Revenue Agency stipulates that winnings derived from a systematic strategy or with a reasonable expectation of profit may be classified as taxable business income, not as a tax-free gambling windfall.
The caution extends beyond Canada, as U.S. regulators also demonstrate increased scrutiny. The Securities and Exchange Commission has delayed the launch of prediction market-linked exchange-traded funds, and legislative efforts aim to prohibit government officials from participating. For prospective users, essential precautions include verifying a platform's legal status, never borrowing funds to wager, accounting for potential tax liabilities, and recognizing that statistically, casual traders are likely funding the outsized profits of a minuscule minority. The allure of rapid gains is tempered by data showing the odds remain overwhelmingly against the average participant.