Prediction market accuracy has suffered under both weak and excessive insider trading enforcement, according to a new academic study that argued a complete ban could leave markets less informative.

According to a June 2 research paper by Balbinder Singh Gill, assistant professor of finance at Stevens Institute of Technology, prediction markets work best under a middle-ground enforcement model rather than a zero-tolerance approach. The study developed an economic framework to examine how insider trading rules affect market participation and price accuracy.

Gill found that stricter enforcement can encourage more traders to participate by limiting insider advantages, but removing insiders entirely can also strip markets of valuable information. As a result, prediction market accuracy follows what the paper described as a “hump-shaped” pattern, improving as enforcement increases up to a point before declining when restrictions become too severe.

Source: Balbinder Singh Gill

The research arrives as regulators and lawmakers have intensified scrutiny of insider trading across prediction markets. In April, the Commodity Futures Trading Commission’s enforcement division warned that traders using non-public information could face enforcement action. A month later, U.S. House lawmakers opened an investigation into Kalshi and Polymarket over insider trading concerns.

Study argues for targeted enforcement

Rather than treating all insider activity the same way, the paper proposed different levels of enforcement based on the source of information.

Under the framework, traders who gain an informational edge through independent research should face little or no enforcement because punishing such activity could discourage information gathering that helps markets produce accurate prices.

A different standard should apply when information is obtained through leaks, stolen documents, classified material, or other forms of misappropriation, the study argued. In those situations, stronger enforcement is warranted because the informational advantage comes from unauthorized access rather than analysis.

At the highest end of the spectrum are participants who can directly influence an outcome they are betting on. According to the paper, those cases carry the highest manipulation risk and justify the toughest enforcement measures.

Recent investigations have highlighted those concerns. Federal authorities opened a probe into former U.S. Representative George Santos after Kalshi reported unusual trading activity linked to a market on whether he would attend the State of the Union address. Authorities alleged Santos publicly stated he would attend, placed a wager that he would not appear, and later skipped the event.

Following similar concerns, Kalshi imposed trading suspensions and financial penalties on local political candidates, including Virginia candidate Mark Moran and Minnesota candidate Matt Klein, after they placed bets on races in which they were competing. Such cases have drawn attention because the trader is not simply forecasting an event but may have the ability to influence the result itself.

Government agencies have also expanded enforcement against traders accused of using classified information. In April, the CFTC and the Department of Justice charged U.S. Army Master Sergeant Gannon Ken Van Dyke with using classified intelligence about a planned military operation targeting Venezuelan President Nicolás Maduro to trade on Polymarket.

According to enforcement filings, authorities relied on Section 746 of the Dodd-Frank Act, often referred to as the “Eddie Murphy Rule,” a provision originally designed to stop government employees from profiting from non-public government reports in commodity markets. The Van Dyke case represented the first known application of that authority to a prediction market platform.

Platforms and companies tighten controls

Even as researchers debate the appropriate level of enforcement, prediction market operators have begun introducing new safeguards.

As previously covered on crypto.news, Kalshi recently announced that users trading in certain sensitive markets, including those tied to corporate performance and national security events, may be required to disclose employment information. The company has also created a market-specific risk scoring system designed to identify contracts with elevated insider trading or manipulation risks.

Those changes followed recommendations from an internal audit committee and growing pressure from regulators and lawmakers.

Two recent cases cited in the study involved traders accused of profiting from privileged information on Polymarket. One involved a Google employee charged with using internal search trend information to earn approximately $1.2 million, while another involved a U.S. soldier accused of trading on classified military knowledge.

Outside the prediction market industry, legal advisers have warned corporations that event contracts are creating new risks around material nonpublic information. 

Corporate law firms have advised companies to update compliance policies and employee handbooks, while some multinational firms are revising insider trading rules and non-disclosure agreements to explicitly cover prediction market activity.

As prediction markets continue to expand, with some financial firms projecting industry volumes could reach $1 trillion by 2030, the debate has increasingly centered on where regulators should draw the line between valuable information discovery and illicit use of privileged information. 

Gill’s research suggests that eliminating insider participation entirely may come with costs of its own, potentially reducing the very price accuracy that prediction markets are designed to provide.

The lobbying arm of crypto futures exchange Hyperliquid and venture capital firm Paradigm has urged the US Treasury to revise a proposed anti-money laundering and sanctions rule for stablecoin issuers.

The Hyperliquid Policy Center and Paradigm said in a letter on Tuesday that some secondary market obligations should be clarified or narrowed “to avoid unintended consequences for permissionless blockchain infrastructure and the DeFi ecosystem.”

The pair said they endorse the Financial Crimes Enforcement Network’s (FinCEN) approach of putting compliance obligations on the “primary market,” such as issuers who have customer information, and taking a “limited approach” to the secondary market, where issuers only see wallets and transactions.

“The same principle should guide the agencies’ implementation of AML and sanctions requirements for stablecoins deployed to permissionless environments,” they argued.

The letter was in response to a rule the Treasury proposed in April to implement GENIUS Act provisions relating to stablecoin issuers, requiring stablecoin issuers to have the capability to block, freeze or reject transactions that violate US law or sanctions on both the primary and secondary markets.

Source: Stefan Schropp

Hyperliquid and Paradigm said the proposal sweeps secondary market activity into an issuer’s compliance perimeter that they “cannot meaningfully police.”

They argued it also treats smart contract interactions as an activity that carries sanctions liability “regardless of whether the issuer has any relationship with, or visibility into, the transacting parties.”

The pair said an issuer who is facing the obligations proposed would be incentivized to only deploy into a permissioned environment, which they argued would see US-regulated stablecoins pulled out of decentralized finance to create “a void filled by unregulated, offshore, non-dollar alternatives.”

Related: Solana Institute CEO says CLARITY Act must shield open-source developers

US President Donald Trump signed the GENIUS Act into law last year, which outlined how stablecoins and their issuers are to be regulated. Federal agencies are currently looking at how to implement the law, which is set to go into effect in January 2027 at the latest.

The Senate is currently debating a crypto bill that could include further rules for stablecoin issuers and remove liability for developers of crypto platforms regarding money laundering and sanctions compliance.

Provisions for the legislation, dubbed the CLARITY Act, are still under discussion, and some lawmakers are pushing for a full Senate vote on the bill before the November elections.

Magazine: The legal battle over who can claim DeFi’s stolen millions

SpaceX’s planned public offering has attracted more than $250 billion in orders, nearly four times the $75 billion it aims to raise. 

The scale has renewed questions about whether the June 12 listing will pull capital from crypto markets.

The IPO is expected to price Thursday at about $135 per share. Orders can still change before final allocations, but early demand shows how much cash investors are preparing to move.

Crypto shows early signs of a liquidity squeeze

As crypto.news reported, the digital asset market lost about $250 billion during the June selloff, while Bitcoin briefly fell below $62,000. The timing supports claims that some investors are rotating toward major technology listings.

SpaceX is not the only pressure. Geopolitical tension, weaker rate-cut hopes and leveraged liquidations have also weighed on Bitcoin and altcoins. The IPO may add strain without being the sole cause.

“That combined selling is what you are seeing right now,” market commentator Bull Theory said.

The statement remains an interpretation because public data does not show how much crypto was sold specifically to fund SpaceX orders.

$2 TRILLION HAS BEEN WIPED OUT FROM US STOCK MARKET IN LAST 2 HOURS.

Two possible reasons for this selloff.

THE FIRST REASON IS SPACEX.

SpaceX lists on June 12 at a $1.77 trillion valuation, raising $75 billion, the largest IPO in US history.

SpaceX allocated 30% of shares… https://t.co/PmeUMBiOax pic.twitter.com/CtmauWtpcf

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— Bull Theory (@BullTheoryio) June 9, 2026

SpaceX trading may keep capital tied up

SpaceX plans to sell $75 billion of stock at a valuation near $1.8 trillion. Reuters reported that retail investors may receive up to 30% of the offering, far above normal IPO allocations.

The demand has reached currency markets. South Korean investors reportedly generated about $1.5 billion in dollar purchases linked to the IPO, adding pressure to the won before those orders cleared.

A strong opening could encourage investors who missed allocations to sell other assets and buy SPCX. A weak debut could ease that pressure, though the stock may remain volatile because only a small portion of SpaceX will trade publicly.

Crypto derivatives signal demand and volatility

Binance, Coinbase, Bybit and Bitget launched SpaceX pre-IPO perpetuals, while Kraken offered tokenized IPO access in more than 110 markets. The products give traders exposure before the stock begins trading.

Hyperliquid’s synthetic SpaceX contract climbed above $200 before retreating toward $165. An earlier SpaceX-linked contract also fell 45% within 30 minutes, liquidating about $1.5 million as thin liquidity worsened the move.

These products do not represent SpaceX shares. Their leverage and limited depth can produce prices that differ sharply from the stock after listing.

Nasdaq entry could extend the liquidity contest

Nasdaq’s updated rules let a large new listing qualify for fast entry into the Nasdaq-100. An eligible company is assessed after seven trading days and can normally enter after 15.

Some analysts estimate that inclusion could trigger $22 billion to $27 billion in passive buying. Nasdaq has not confirmed that figure. Its rules also say fast entry does not require removing another company.

Crypto’s main risk is therefore continued competition for speculative capital. Bitcoin ETF flows, stablecoin reserves and SPCX’s opening performance will show whether pressure continues after the debut.

Blockchain security firm Chainalysis is strengthening its collaboration with South Korea’s national police to crack down on crypto crimes, including those involving North Korea.

Chainalysis said on Wednesday that it signed a memorandum of understanding with the Korean National Police Agency (KNPA), aimed at building investigative capability within South Korea’s law enforcement. 

Chainalysis said one of the driving factors behind the agreement is to better combat North Korea-linked crypto attacks, with South Korea’s police “at the forefront” of tackling these threats. However, Chainalysis’s country director Ryan Kwon said agreement aims to tackle all threats.

“While North Korean-driven attacks are understandably a national security focus, this partnership isn’t designed around a single threat. It’s fundamentally about building institutional capability,” Kwon told Cointelegraph.

Signing ceremony of the MoU between Chainalysis and the Korean National Police Agency. Source: Chainalysis

In April, crypto theft linked to North Korea topped $578 million, largely from attacks targeting Kelp DAO and the Drift Protocol. Research from CrowdStrike found that North Korea-affiliated hackers were responsible for $2 billion in crypto losses in 2025, up 51% from the year before. 

Related: South Korea police raid Bithumb over lawmaker hiring favoritism probe: Report

The agreement will give the KNPA access to personalized training content by Chainalysis, along with professional certification programs and practical training.

“To investigate these cases effectively, Korean investigators need global visibility into illicit fund flows,” Chainalysis said. 

Chainalysis has aided South Korean investigators for years. In September, police in Seoul dismantled an international hacking organization that had stolen approximately $30 million. The investigation began in South Korea but eventually saw investigators track the target to Thailand. 

The MoU comes weeks after South Korean police launched a special multi-agency task force to tackle crypto-based money laundering, called the Money Laundering Eradication Task Force, which is led by the Economic Crime Investigation Division. 

Magazine: North Korea denies crypto hacks, Upbit’s bank tests Ripple: Asia Express

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A widely-tracked 5x-leverage perpetual on Hyperliquid tied to SpaceX’s impending IPO, expected to be the largest in history, has declined for three consecutive weeks.

The product, tickered as SPCX, traded near $157 on Wednesday, down about 27% from its mid-May launch price of around $216, after briefly touching $230.

That does not mean traders are betting against SpaceX, as SPCX still trades above the $135 IPO price. But the implied first-day premium has been cut hard. In May, the contract priced SpaceX roughly 60% above the offer, and it stood closer to 16% as of Wednesday.

The company set the offer price at $135 per share, with no price range for investors to push it higher or lower during the bookbuild. In most IPOs, bankers collect orders and move the price based on demand. But SpaceX has taken a fixed-price route where investors either take the price or do not.

That leaves the SPCX perp as one of the few places where a SpaceX-linked price is actually moving before the stock opens.

The contract does not give holders shares, allocation rights or any claim on SpaceX. It is a cash-settled derivative that lets traders bet on where the company’s equity value should trade. Unlike an IPO indication of interest, traders in the perp have money at risk and can lose it before the first share changes hands.

The official book still looks huge. Reuters reported that SpaceX has drawn more than $250 billion in investor interest for a $75 billion raise, making the deal several times oversubscribed. Large investors often ask for more stock than they expect to receive, especially in hot deals.

SPCX’s prices suggest traders still expect a premium to the $135 offer.

That may partly reflect broader market pressure. Crypto has weakened into the IPO, and bitcoin remains well below its January high. Some investors may also be raising cash to fund SpaceX allocations, adding pressure to the same risk market where SPCX trades.