The European Securities and Markets Authority cautioned that major prediction platforms like Polymarket and Kalshi do not possess the permits required to cater to European Union customers, while also highlighting the growing susceptibility of digital assets to a potential downturn in technology equities.
“The promotion and distribution of event contracts inside the EU typically mandate an official EU license, which the leading prediction market platforms currently lack,” the regulatory body expressed in a risk report published on Thursday.
Prediction platforms allow individuals to wager on future occurrences, spanning elections, athletics, cryptocurrency valuations, and macroeconomic trends. These agreements typically disburse a fixed sum if a specific condition transpires and yield zero otherwise.
Both services ban betting from certain EU nations while omitting others from their restricted directories, according to ESMA.
“It remains ambiguous why every EU Member State is not incorporated into the banned territories registry,” the agency noted, pointing to hazards involving unauthorized provisions and violations of current retail commerce curbs. It additionally questioned whether these websites can successfully police blocks against virtual private networks capable of masking client locations.
Multiple jurisdictions both inside and outside the EU have taken steps to restrict prediction platforms. In July, French authorities instructed domestic internet service providers to block access to Polymarket, extending previous bans enacted by Switzerland, Poland, Singapore, Belgium, Portugal, Spain, Brazil, and other countries.
The applicable mandates rely on the specific contract structure. Event contracts can classify as financial instruments under EU securities guidelines, fall within the trading bloc’s Markets in Crypto-Assets (MiCA) structure if grounded in distributed ledger technology rather than operating as financial instruments, or qualify as gambling under domestic legislation, the publication added.
In instances where agreements qualify as financial products, they generally fall under existing local binary-options regulations that forbid their advertising, delivery, and retailing to everyday investors, ESMA explained.
European market manipulation statutes can penalize malpractice solely when such contracts exist inside the financial regulatory boundary, ESMA noted.
AI Bubble and Crypto
Aside from prediction markets, major technology firms are borrowing heavily to finance artificial intelligence expenditures, pushing valuations higher and elevating the threat of an AI market bubble, ESMA stated.
Should AI investments fall short of expectations or debt burdens provoke a tech sector liquidation, major institutional holders might unload riskier and more liquid assets, including cryptocurrencies, to secure liquidity.
Pablo Hernandez, director of the Bank for International Settlements (BIS), on Thursday stopped short of explicitly forecasting an AI bubble. He did, nonetheless, draw parallels between the AI boom and the dot-com surge of the late 1990s, stating, “All drew in more capital than eventual returns could justify.”
Digital assets are more vulnerable to this category of shock than during previous financial cycles because spot bitcoin ETFs, bank-minted tokens, and institutional safeguarding services have bound digital coins closer to traditional finance, he stated.
Equities rebounded following the intensification of the U.S.-Iran conflict, whereas crypto has yet to bounce back, ESMA observed. The agency further highlighted that bitcoin dropped 35% during the initial half of 2026, whereas alternative smaller tokens slumped by as much as 61%. U.S. spot bitcoin exchange-traded funds registered over $5.5 billion in redemptions, and spot ether instruments shed nearly $2 billion. ESMA cautioned that a technology stock sell-off could trigger further crypto liquidations.
Originally published at https://www.coindesk.com/business/2026/09/10/europe-s-top-regulator-questions-polymarket-and-kalshi-s-eu-access-warns-of-authorization-gaps.
