Trading on the Weather: Prediction Markets and BVI Law Issues

Prediction markets have rapidly evolved from experimental blockchain curiosities into a mainstream segment of the global fintech ecosystem. As platforms like Polymarket and Kalshi draw billions in trading volume and attract strategic investment from major financial institutions, offshore legal frameworks, particularly in jurisdictions such as the British Virgin Islands (BVI), will increasingly be called upon to address novel questions of classification, licensing, governance, and asset treatment.

In this update, we explore prediction markets, explain their growing relevance, and key legal issues that could face BVI entities.

What is a prediction market?

At their core, prediction markets facilitate trading in binary event contracts, typically structured as ‘YES’ or ‘NO’ shares tied to the occurrence of a defined future event.

A ‘YES’ share pays $1 if the specified event occurs and $0 if it does not. A ‘NO’ share operates inversely. These shares trade at prices between $0 and $1, with the market price reflecting the aggregated view of participants as to the probability of the event occurring. For example, a ‘YES’ share trading at $0.65 implies a market-implied probability of 65%.

Recent examples of such contracts include:

• Will Bitcoin trade above $X on a certain date?
• How high will the 10‑year US Treasury yield be on 31 March 2026?
• Will the US government confirm extraterrestrial life before 2027?
• How many SpaceX launches will occur in 2026?
• Which country will top the gold‑medal table at the 2026 Winter Olympics?
• Will a specific company complete an IPO before 2027?

Prediction markets operate as continuous trading venues. Prices adjust instantaneously as new information enters the market, allowing participants to revise their positions prior to settlement.

Unlike traditional betting models, these markets are structured around price discovery rather than fixed odds. Participants may enter and exit positions at any time before the contract resolves, crystallising gains or losses based on interim price movements.

For example, if a ‘YES’ contract for ‘Will it rain tomorrow?’ initially trades at $0.20, and updated meteorological data significantly increases the likelihood of rainfall, the price may rise to $0.90. A participant who purchased at $0.20 could sell at $0.90 and realise profit without waiting for the event outcome. Conversely, if no rain materialises and the contract settles at $0, holders of ‘YES’ shares at expiry would receive nothing.

In economic terms, these instruments function as short-dated contingent claims whose value fluctuates with market-implied probability assessments.

Why prediction markets matter in 2026

As prediction markets continue to gain popularity, prediction market platforms increasingly resemble regulated derivatives exchanges in scale, operational sophistication, and user demographics.

A defining feature of this evolution is the central role of stablecoins and blockchain technology. Polymarket conducts all trading in USDC, a US‑dollar‑pegged cryptocurrency (stablecoin). It also operates on a blockchain-native infrastructure.

This is a prime example of cryptocurrency not being used as experimental digital tokens, but as dependable, institutional‑grade financial infrastructure in a high-profile and mainstream product.

With stablecoins such as USDC becoming the settlement layer for millions of trades, this shift illustrates a broader maturation within the digital‑asset ecosystem, with stablecoins no longer being seen as peripheral or speculative but instead functioning as core monetary plumbing for emerging financial products.

In October 2025, Intercontinental Exchange, owner of the New York Stock Exchange, invested US$2 billion into Polymarket. This institutional validation presented an unprecedented endorsement of prediction markets as a new asset class.

Major fintech and crypto platforms are entering or expanding in prediction markets. Coinbase has begun rolling out prediction market products in partnership with Kalshi, Gemini secured the US Commodity Futures Trading Commission’s approval to operate its own prediction markets, and Robinhood has launched event contract trading. The product is now firmly in the mainstream fintech category.

Key legal issues

This unprecedented growth has led to an area that is fertile ground for litigation and regulatory issues which may not be covered squarely under traditional frameworks and will need to be addressed by either the courts or regulators. For example, from a BVI perspective:

1.     Classification of prediction market contracts

Litigation is currently ongoing in the United States regarding whether prediction market contracts could be classified as gambling products, and it is expected that this will be informative for how regulators around the world, including the BVI Financial Services Commission, treat their position.

Regulators will ultimately need to determine whether prediction market contracts should be treated as financial instruments, gambling products, derivatives, property (like crypto-assets), contracts or whether they fall into a new category.

That classification exercise is not merely academic. The legal character of an asset determines the regulatory regime applicable to it, the proprietary status (if any) it attracts, and the remedies available in relation to it. In a BVI context, the classification of prediction market contracts will be central to questions such as whether they are capable of being the subject of proprietary claims, whether they can support freezing or proprietary injunctions, and how conflicts-of-laws principles apply to rights arising from them.

2.     Considerations for company directors

Directors will also need to consider whether entering into prediction market positions falls within the company’s corporate capacity and investment mandate. That includes assessing whether such exposure is permitted under the company’s memorandum and articles of association, whether it is consistent with any investment policy or shareholder restrictions, and whether it could be characterised as speculative activity falling outside the company’s commercial objects or may otherwise be unlawful or breach the relevant online platform’s access restrictions under applicable laws.

Even where constitutionally permissible, directors remain subject to fiduciary and statutory duties — including duties to act in good faith in the best interests of the company, to exercise powers for proper purposes, and to exercise reasonable care, skill and diligence. If a company incurs significant losses through prediction market exposure, shareholders may seek to bring derivative claims, alleging that the directors acted imprudently, or outside their mandate.

Accounting treatment also raises practical concerns. Depending on how the law classifies a prediction market position (eg as a bet, a derivative, or some other financial instrument), it may need to be reflected in a company’s accounts in different ways, either valued at its current market price, reviewed for potential losses, or disclosed as a contingent or derivative exposure. A failure to properly record or disclose such positions could itself give rise to governance or reporting disputes.

3.     Trusts

A more nuanced question arises in the context of BVI VISTA trusts: to what extent may trustees permit directors of an underlying company to engage in speculative activity without incurring liability?

BVI VISTA trusts were designed to disapply the traditional supervisory obligation of trustees in relation to the management of underlying companies. The regime modifies the ‘prudent person of business’ constraint that would ordinarily require trustees to intervene where directors pursue higher-risk strategies. Under VISTA, the management of the underlying company is generally left to its directors, and trustees are restricted from interfering except in defined circumstances.

By contrast, in a non-VISTA trust, trustees remain subject to orthodox fiduciary duties. They must act prudently, avoid speculative or imprudent investments unless authorised, and safeguard trust assets. If a trustee knowingly permits exposure to high-risk or legally uncertain instruments (such as prediction market contracts) the question of breach may arise in the event of loss.

The distinction therefore becomes critical where trust-owned companies enter into prediction market positions. In a VISTA structure, liability will turn on the terms of the trust instrument, the scope of any reserved powers, and whether the trustees have acted consistently with the statutory framework. In a non-VISTA structure, trustees may face greater scrutiny if such positions are characterised as speculative, ultra vires, or legally impermissible.

The classification of prediction market contracts will directly affect the fiduciary analysis. If such contracts are ultimately characterised as void or unenforceable, trustees (or directors) who authorised exposure may face breach of trust or breach of duty claims. Conversely, if they are recognised as legitimate financial instruments, the focus will shift to questions of prudence, diversification, and proper decision-making processes.

Accordingly, prediction market exposure has the potential to generate future litigation in the context of fiduciary duties, trustee oversight, and corporate governance within trust structures.

Conclusion

Prediction markets sit at the intersection of fintech, derivatives, digital assets, and gaming regulation. Their rise presents offshore jurisdictions with new challenges around classification, regulation, governance, and dispute resolution. With many questions still unanswered, litigation and regulatory action are almost inevitable.

How can we help?

As the law develops through regulation and test‑case litigation, those engaging with these markets will benefit from early, informed guidance to manage risk and position themselves for changes and developments.

For further information, please get in touch with your usual Mourant contact or one of the key contacts named on this page.