Americans are on pace to lose over $250B on legal gambling in 2026, while crypto and options escape the same rules. The regulatory gap costs states $500M in tax revenue from prediction markets alone.
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Americans are on track to lose more than a quarter trillion dollars on legal gambling in 2026, according to an analysis by economics writer Joseph Politano. That figure only counts sportsbooks and casinos. It excludes the money flowing through crypto prediction markets, zero-days-to-expiry options, and memecoin trading – each of which channels billions of dollars into activity that looks economically like a bet.
Politano projects total gambling losses will exceed $250 billion this year. Losses have climbed 67% since the start of COVID-19 and another 8% over the past year alone. The growth rate outstrips anything recorded between 2000 and 2020.
The gap between what regulators call gambling and what they call investing has become one of the stranger features of American financial life. A resident of a state where sports betting is illegal can open a crypto prediction market app and take a position on whether the Federal Reserve cuts rates in September, whether a hurricane makes landfall in Florida, or which team wins the World Series. A trader with no view on economic fundamentals can buy an option that expires in six hours. A teenager with a crypto wallet can invest in a token that exists purely because a meme went viral.
Each activity involves risking money on an uncertain outcome. Each falls under a different regulator, a different legal standard, and in some cases, no meaningful oversight at all.
The American Gaming Association reported that commercial gaming revenue in the US hit a record $78.72 billion in 2025, up 9.2% from the year before. Sports betting alone generated $16.96 billion in revenue on a total handle of $166.94 billion, up nearly 23% and 11% respectively over 2024, when Americans had already wagered just under $150 billion legally on sports. Since the Supreme Court's 2018 ruling in Murphy v. NCAA struck down the federal prohibition on sports betting, 39 states and Washington, D.C. have legalized some form of it.
Research cited by Politano found that in states where sports betting is legal, an NFL home team's upset loss raises the rate of intimate partner violence by ten percentage points more than in states without legal betting. Separate work from New York Fed economists Jacob Goss and Daniel Mangrum, drawing on millions of credit reports, showed debt delinquency rates rising as states legalized sports gambling, concentrated among men and people under 40.
Meanwhile, a set of markets that regulators don't classify as gambling at all has grown even faster. Total US listed options volume topped 15.2 billion contracts in 2025, a sixth consecutive annual record and a 26% jump over 2024, according to Cboe's year-end report. Zero-days-to-expiration contracts on the S&P 500 averaged 2.3 million contracts a day and made up 59% of total SPX volume, with retail traders responsible for roughly half to 60% of that flow.
In crypto, memecoin market capitalisation fell 61% from early-2025 highs to about $36.5 billion before recovering to roughly $47.3 billion in early 2026. CryptoSlate's year-end accounting of 2025's worst-performing tokens traced that round trip through a string of celebrity and politically themed launches that left early insiders enriched and late retail buyers underwater.
Prediction market activity also surged. Data compiled by Gambling Insider put 2025 notional trading volume across major platforms at more than $44 billion, with Polymarket and Kalshi together accounting for roughly $38 billion to $39 billion. Polymarket did about $21.5 billion and Kalshi $17.1 billion through November.
The economic behavior is often identical while the legal treatment is not. A trader who buys a contract on whether the Fed cuts rates in September and a trader who buys an out-of-the-money option tied to the same Fed decision both use federally regulated market infrastructure. The sharper contrast is with sportsbook-style event wagers. Sports bets routed through licensed books face state gambling rules. Similar event exposure routed through federally regulated prediction markets is being litigated under derivatives law, without the same state licensing, tax collection, or responsible-gambling requirements.
This is the fault line the gambling industry has begun fighting over. AGA estimates that prediction markets offering sports-related contracts have diverted more than $500 million in potential state and tribal betting tax revenue since the start of 2025. The fight has already produced a tangle of lawsuits and state enforcement actions in Nevada, Massachusetts, Arizona, and Tennessee, all testing whether federal derivatives law preempts state gambling statutes.
The CFTC itself is split on the question along generational lines. Former Chairman Gary Gensler filed a brief in June siding with AGA and arguing that Congress never intended his own agency to become a national sports-betting regulator. The current CFTC has sued states directly to assert exclusive jurisdiction over the same contracts.
The dispute split the gambling industry itself. DraftKings and FanDuel both resigned from the AGA in November 2025, days before DraftKings launched its own federally regulated event-contract product, after the trade group moved to bar members that operate prediction markets. Within six months, that product had reached a $3.1 billion annualized trading run rate. It is a fraction of Kalshi's scale but proof that the state-licensed sportsbook industry now sees more upside in the federal derivatives lane than in the framework it spent a decade building.
The current regulatory framework depends on legal categories built for different markets: securities law for securities and options on them, commodities law for futures and event contracts, and state gambling law for wagers. Newer products and retail trading behavior blur the practical line between those categories. A same-day option, a sports contract on a prediction market, and a short-lived memecoin trade expose users to similar loss patterns while triggering very different safeguards.
Depending on platform access and ongoing litigation, a resident of a state without legal sports betting can trade sports-linked event contracts through a federally regulated prediction market with fewer sportsbook-specific restrictions than apply to licensed books in states where betting is legal. A retail trader can lose a paycheck on a same-day option with the same speed and finality as a losing parlay. The loss is recorded as an investment outcome, exempting it from the responsible-gambling infrastructure states have spent years building. A memecoin with no underlying business may avoid meaningful federal oversight unless its launch, promotion, or sale creates securities-law exposure, leaving a large speculative market outside any purpose-built consumer-protection regime.
Economists and gambling researchers who study these overlapping markets argue that regulation should track the risk a product actually poses: leverage, time horizon, addiction potential, the likelihood of catastrophic loss. Not which legal bucket the product happens to fall into. Under that framework, a same-day options contract and a same-day sports bet would face similar scrutiny regardless of which regulator signs off. A memecoin with 99% odds of losing most of its value within two months would not escape oversight simply because it is denominated in stablecoins.
None of this means every dollar routed through prediction markets, options, or crypto tokens represents disguised gambling. The activity in each category includes genuine hedging, price discovery, and long-term investment. The country has built an elaborate legal architecture that treats identical economic behavior differently depending on which door a person walks through to place it. A sports bet through a sportsbook gets taxed and regulated far more heavily than the same bet through a federally sanctioned exchange. An entire category of speculative crypto assets remains almost untouched. The DraftKings event-contract product, now annualising $3.1 billion in trading volume, offers a concrete measure of how fast capital is moving into the looser regime.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.