- ESMA says Polymarket and Kalshi operate in the region without required authorisation.
- The regulator warns an AI-driven tech sell-off could trigger fresh crypto losses.
Europe’s securities watchdog has issued a warning to major prediction markets, saying platforms like Polymarket and Kalshi lack the authorisation needed to serve users across the European Union.
In a risk report published on Thursday, the European Securities and Markets Authority (ESMA) maintaining that 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 move marks one of the clearest signals yet that unlicensed event-trading sites face growing regulatory pressure in Europe.
ESMA highlighted that both Polymarket and Kalshi block trading from some EU countries but leave others off their restricted lists, creating confusion over which users can legally access the platforms.
The regulator questioned why not all 27 member states appear on those lists and raised doubts about whether the sites can enforce bans when traders use virtual private networks to hide their location.
Authorization Gaps and Legal Uncertainty
Several countries have already acted. France ordered internet providers to block Polymarket in July, following similar steps in Switzerland, Poland, Singapore, Belgium, Portugal, Spain and Brazil.
The legal status of event contracts remains unclear. ESMA said they may qualify as financial instruments under EU securities rules, fall under the Markets in Crypto-Assets (MiCA) framework if built on distributed ledger technology, or count as gambling under national law.
Where contracts meet the definition of financial instruments, they typically trigger existing national bans on binary options for retail investors, meaning marketing and sale to everyday traders would breach current prohibitions.
Beyond prediction markets, ESMA flagged a separate risk: a potential AI-driven bubble in big tech. The regulator said major technology firms are borrowing heavily to fund artificial-intelligence spending, pushing valuations higher and raising the chance of a sharp correction.
If AI investments underperform or debt pressures mount, large investors could dump riskier assets, including crypto, to raise cash. Market data underscores the vulnerability. Bitcoin fell 35% in the first half of 2026, while smaller tokens lost as much as 61%, according to ESMA.
U.S. spot bitcoin ETFs saw more than $5.5 billion in outflows, and spot ether funds lost nearly $2 billion.
Although stocks rebounded after an escalation in the U.S.-Iran conflict, crypto has yet to recover, the regulator noted. A broader technology sell-off could deepen those losses, ESMA warned.