Motley Fool Money: Polymarket, Kalshi, and the Line Between Investing or Gambling

Date: October 21, 2025
Host: Emily Flippen
Guests: Jason Hall, San Mi Deo
Theme: The rapid rise of prediction markets—are they the future of investing, or just gambling by another name? What’s fueling their growth, and should investors be jumping in or steering clear?

Episode Overview

In this episode, the Motley Fool team dives into the booming world of prediction markets, exemplified by platforms like Kalshi and Polymarket. Exploring their legal status, investment opportunities, and whether these platforms blur the line between investing and gambling, the analysts discuss what this trend means for individual investors, big institutions, and the broader financial system.

What Are Prediction Markets?

[00:05–02:02]

• Emily Flippen introduces prediction markets as a formerly obscure industry that exploded in popularity almost overnight, now handling billions in annual flows.
• San Mi Deo explains prediction markets as “betting on real world events”—from elections to entertainment (“the existence of aliens” even).
• Key Trigger for Industry Growth:
  • Legalization and regulatory approval, with Kalshi becoming the first CFTC-regulated exchange, adding legitimacy and attracting institutional investment.
  • Investment highlight: Intercontinental Exchange (ICE) (owner of NYSE) investing $2 billion in Polymarket.
  • User-friendly, low-cost platforms ignited consumer adoption.

Quote:

“Kalshi is one of them, which became kind of the first CFTC-regulated exchange. And that was a game changer because it made the entire space kind of feel legitimate and safe.”
— San Mi Deo, 01:21

Investing vs. Gambling: Where’s the Line?

[02:02–04:04]

• Emily acknowledges prediction markets feel a lot like gambling, but points out the argument that they operate like “regulated financial markets”—akin to options on real world events.
• Jason Hall breaks down regulatory nuances:
  • While draft kings/betting platforms are regulated on a state level, prediction markets operate under federal CFTC oversight.
  • Key Difference: “They’re not the house”—users bet against each other, not the platform.
  • Ongoing legal uncertainty: States are pushing back, and lawsuits are pending.

Quote:

“Look, this is, this is gambling, all right, this is gambling—legally it exists and this is where it's different... Kalshi bought a CFTC regulated exchange... the difference is they're not the house... So that's how it exists, because it's the same structure that's in place for commodities trading. ...Now, there's still lawsuits going on.”
— Jason Hall, 02:28–03:47

How Can Investors Get Exposure to Prediction Markets?

[04:56–09:38]

• Direct Participation: Not every investor wants to gamble directly or have their portfolio reflect vice industries.
• Derivative Investments:
  • Robinhood (HOOD) recently launched a prediction markets hub in partnership with Kalshi.
    • Robinhood is already seeing “momentum” from this addition, but predicts long-term competition will erode margins and advantages as it did for online brokers.
    • Early, explosive growth but likely to become a “highly competitive price taker” space.
  • Intercontinental Exchange (ICE): A “picks and shovels” play, owning the underlying infrastructure and exchanges. Their $2bn Polymarket investment is small relative to ICE's total revenue.
    • Provides diversified exposure regardless of which specific platform comes out ahead.

Notable Analysis:

“If these platforms are going to survive with the prediction markets, you’re going to see an explosion in competition. ... and then inevitably we’re going to see consolidation of the winners. Again, I’m going to bring online brokers back into that, because that’s largely what we’ve seen.”
— Jason Hall, 06:43

• Network Effects:
  • Volume and liquidity are crucial; larger platforms with more users reduce friction and fees, benefitting from powerful network effects.
  • Potential for big players (Fidelity, Schwab, DraftKings) to enter via acquisition, leveraging existing customer bases.

Quote:

“The one with more liquidity, the more volume, the more opportunities to do the trades where you feel more comfortable... could potentially be leading. But it will rise all tides too.”
— San Mi Deo, 10:20

Are Prediction Markets Really Different From Investing?

[12:29–14:55]

• Younger Americans: Distrust of traditional finance has fueled interest in prediction markets, perceived as fairer and with outcomes “based on skill, not luck.”

• Perceived Fairness:

  • “Prediction markets offer a pure test of judgment you don’t find elsewhere. ... There’s a direct, unambiguous link between your foresight and the result.” (San Mi Deo, 13:12)
  • For skilled risk-takers, this clarity is a huge draw.

• But—The Dopamine Hit & Risk:

  • Lowered friction and gamification can foster addictive, “lottery ticket” mentality among many users.
  • Similarities drawn to historic surges in day trading; skill vs. luck remains a subtle dividing line.

• Investing vs. Gambling: Fundamental Difference:

  • Emily prefers equities for their intrinsic value and cash generation.
  • Prediction markets are likened more to options/contracts, with values derived from market sentiment and participant skill, not underlying assets.
  • Individual prediction contracts considered too risky for most investors’ core portfolios.

Quotes:

"This is a dopamine hit, people. ... Buying that lottery ticket... For most users, that's the case. ...There will be a big transition of money from those who think they have skill and those who actually do."
— Jason Hall, 13:44

“There’s something nice to me that when I buy an equity, I’m buying aspects of a business that I have underlying economics, right, underlying cash, generative potential. ...On an individual contract basis, investors can probably... avoid putting [prediction contracts] in their portfolios.”
— Emily Flippen, 14:55

Key Takeaways

• Prediction markets have exploded due to regulatory legitimacy, institutional investment, and easy-to-use platforms.
• The legal/regulatory environment remains fluid; future restrictions or crackdowns are possible.
• Investors can play the trend indirectly via public companies (like Robinhood or ICE) instead of directly betting on outcomes.
• Liquidity, volume, and network effects are decisive for platform dominance, but expect eventual consolidation.
• Psychology and skill vs. luck: Most users are in for the thrill, not consistent returns; the clean, binary outcomes are appealing, but not a substitute for investment fundamentals.
• Long-term view: The team remains skeptical about prediction contracts as core portfolio holdings but sees broader industry relevance.

Memorable Quotes & Timestamps

• “Kalshi is one of them, which became kind of the first CFTC-regulated exchange. And that was a game changer…”
  — San Mi Deo, 01:21

• “Look, this is, this is gambling, all right, this is gambling—legally it exists…”
  — Jason Hall, 02:28

• “Robinhood is already seeing, the business is seeing some momentum from this and I think they have exposure, you know, to it that's going to probably grow...”
  — Jason Hall, 05:46

• “The one with more liquidity, the more volume, ...could potentially be leading. But it will rise all tides too.”
  — San Mi Deo, 10:20

• “Prediction markets offer a pure test of judgment that you don’t find elsewhere... There’s a direct, unambiguous link between your foresight and the result.”
  — San Mi Deo, 13:12

• “This is a dopamine hit, people. ... That’s what’s happening right now...”
  — Jason Hall, 13:44

• “There’s something nice to me that when I buy an equity, I’m buying aspects of a business that I have underlying economics...”
  — Emily Flippen, 14:55

Important Segments & Timestamps

• What is a Prediction Market? — 00:05–02:02
• Legal Differences: Prediction Markets vs. Gambling — 02:02–04:04
• Investing in Robinhood & ICE — 04:56–09:38
• Network Effects and Platform Wars — 09:38–11:48
• Reflection: Are Prediction Markets Investing or Gambling? — 12:29–14:55

Bottom Line:
Prediction markets are establishing a new “regulated” ground between investing and gambling. While the thrill and clarity attract a new generation, the Motley Fool team cautions: treat these as speculative side bets, not replacements for thoughtful, long-term investment in businesses. Instead, watch for durable, broad-based opportunities in industry enablers like ICE, or treat Robinhood as a pure, riskier growth play.