Michael Burry, the investor immortalised in Michael Lewis’s crisis-era book The Big Short, has turned his fire on prediction markets, arguing that platforms like Kalshi are nothing more than gambling operating under a convenient legal fiction. His broadside landed as the sector faces mounting scrutiny over user losses, insider-trading risks, and a running battle with state regulators.
‘Kalshi as with all prediction markets is in a regulatory loophole within an extremely heavily taxed and excessively regulated industry that is gambling no matter what anyone calls it,’ Burry wrote on X.
Michael Burry on Prediction Markets and the Cheating Problem
Burry’s critique went beyond the label of gambling. He reserved particular scorn for what he sees as an absence of effective safeguards against insider trading, writing: ‘Kalshi presents the ability to gamble and cheat, and the loophole allows all of it in every state.’
Kalshi chief executive Tarek Mansour had recently countered this concern, arguing that detecting insider trading is actually easier on prediction platforms than in traditional stock markets. Burry was unconvinced. ‘There is nothing preventing cheating in prediction markets. Cheating, the only activity as old as gambling, with the same power to drive humans to extremes,’ he added.
His broader argument was that the current regulatory structure places ordinary users at a structural disadvantage, a concern echoed by the Roosevelt Institute in its recent report. Hindustan Times reported the think tank’s finding that everyday Kalshi users have lost $583.5 million since the platform launched, with a small cadre of professional traders capturing the overwhelming share of profits.
The Roosevelt Institute’s report, titled ‘The Hidden House: Prediction Markets and How They’re Shaping Society,’ aligns with a Wall Street Journal investigation from May 2026 that found the vast majority of users on both Kalshi and Polymarket lose money, with most payouts flowing to a tiny number of accounts, according to Business Insider.
The Regulatory Fault Lines Behind Burry’s Attack
Kalshi’s legal position is more complex than a simple loophole. The platform is regulated by the Commodity Futures Trading Commission (CFTC) as a Designated Contract Market, a classification covering exchanges that trade futures, swaps, and options on commodities, as the Kalshi Help Center sets out. That federal designation has become a flashpoint.
In February 2026, state regulators in Nevada, Massachusetts, and Tennessee moved to enforce their own gambling laws against the platform. The U.S. District Court for the Middle District of Tennessee granted Kalshi a preliminary injunction on 19 February 2026, finding that its sports event contracts are likely ‘swaps’ under the Commodity Exchange Act and that federal law likely pre-empts Tennessee’s efforts to regulate them, according to a Holland & Knight analysis. The jurisdictional fight between federal commodity law and state gambling statutes remains live.
Distressed debt investor Thomas Braziel has made parallel arguments, characterising prediction platforms’ business model as ‘sleight of hand’ and warning that an eventual tightening of regulation could pose serious risks both to users and to the platforms themselves.
Burry had flagged the regulatory horizon before his July posts. In earlier comments reported by TheStreet, he warned that ‘in time, prediction markets will be’ subject to greater regulatory pressure, framing their current operation as existing in ‘a loophole adjacent to a heavily regulated and taxed industry.’
His scepticism has not translated into a blanket aversion to the online betting sector. Around 8 July 2026, Burry was reported to have taken a position in online gambling stocks including DraftKings, even as he was publicly distancing himself from prediction markets, according to Investing.com. The distinction he draws is regulatory: licensed gambling operates within a framework he considers transparent, while prediction markets, in his view, exploit a gap that benefits professional traders and insiders at the expense of retail participants.
‘Of course it is number 1 by a mile and will keep growing as long as society steps aside and lets these horrific base human weaknesses run roughshod over all and any logical, moral and decent challenge,’ he wrote of Kalshi’s growth trajectory.
Whether the federal-versus-state legal battle resolves cleanly or drags through further court challenges, the outcome will determine whether prediction markets retain their current operating freedom or face the heavier compliance burden Burry believes is inevitable. The Tennessee injunction’s appeal, if pursued, is the next concrete inflection point to watch.