ESMA said that event contracts may fall under existing EU binary-options bans, crypto-asset frameworks like MiCA or national gambling laws.
- The European Securities and Markets Authority warned that major prediction markets like Polymarket and Kalshi lack the authorization required to serve EU users.
- ESMA noted that event contracts may fall under existing EU binary-options bans, crypto-asset frameworks like MiCA or national gambling laws.
- The regulator also warned that heavy AI spending is inflating tech valuations, and a resulting stock sell-off could drag down closely tied crypto assets.
The European Securities and Markets Authority (ESMA) warned that major prediction markets including Polymarket and Kalshi lack the authorization generally required to serve EU users, while flagging the growing vulnerability of crypto assets to a potential sell-off in technology stocks.
“The marketing and sale of event contracts in the EU generally requires an EU authorisation, which the largest prediction market platforms currently do not hold,” the regulator said in a risk report released on Thursday.
Prediction markets let users trade contracts on future events, ranging from elections and sports to cryptocurrency prices and economic outcomes. Contracts typically pay a fixed amount if a specified outcome occurs and nothing otherwise.
Both platforms prohibit trading from some EU countries but leave others off their restricted lists, ESMA said.
“It is unclear why all EU Member States are not included in the list of restricted jurisdictions,” it wrote, citing risks of unauthorized services and breaches of existing retail trading restrictions. It also questioned whether the platforms can effectively enforce bans on virtual private networks (VPNs) that can be used to conceal users’ locations.
Various countries within the EU and outside of it have moved to block prediction markets. In July, France ordered the country’s internet service providers to block access to Polymarket, building on blocks from Switzerland, Poland, Singapore, Belgium, Portugal, Spain, Brazil and others.
The rules depend on the contract. Event contracts can qualify as financial instruments under EU securities rules, fall under the bloc’s Markets in Crypto-Assets (MiCA) framework if based on distributed ledger technology and not financial instruments, or count as gambling under national law, the report adds.
Where contracts qualify as financial instruments, they generally fall under existing national binary-options measures prohibiting their marketing, distribution and sale to retail investors, ESMA said.
Europe’s market abuse rules can address misconduct only where the contracts fall within the financial regulatory perimeter, ESMA said.
AI bubble and crypto
Separately from prediction markets, big technology companies are borrowing heavily to fund artificial-intelligence spending, driving valuations higher and raising the risk of an AI bubble, ESMA said.
If AI investments disappoint or debt pressures trigger a technology sell-off, large investors may sell riskier and more liquid holdings, including crypto, to raise cash.
Pablo Hernandez, the head of the Bank for International Settlements (BIS), on Thursday stopped short of also predicting an AI bubble. He did, however, compare the AI boom to the dot-com boom of the late 1990s. «All drew in more capital than eventual returns could justify,» he said.
Crypto is more exposed to that kind of shock than in past market cycles because spot bitcoin ETFs, bank-issued tokens and institutional custody have tied digital assets more closely to traditional finance, he said.
Stocks bounced back following the escalation of the U.S.-Iran war, but crypto has not recovered yet, ESMA said. It also noted that bitcoin fell 35% in the first half of 2026, while smaller tokens lost as much as 61%. U.S. spot bitcoin ETFs saw more than $5.5 billion in outflows, and spot ether funds lost nearly $2 billion. ESMA said a technology sell-off could prompt further crypto selling.
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Tokenized Equities Lead RWA Inflows as bStocks Sets the Pace
Tokenized Equities Lead RWA Inflows as bStocks Sets the Pace
Tokenized equities lead RWA inflows as the market recovers; Binance’s bStocks hit ~$118.5M in two months, now #2 issuer and ~90% of on-chain equity DEX volume.
Why it matters:
Tokenized equities lead RWA inflows as the market recovers; Binance’s bStocks hit ~$118.5M in two months, now #2 issuer and ~90% of on-chain equity DEX volume.
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