🚀 How will prediction markets be taxed?

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Market Overview
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Year To Date Performances:

1. Prediction markets are experiencing a massive surge in volume—projected to reach $1 trillion by 2030 yet the IRS has issued zero specific guidance on how to tax the resulting gains and losses. This has left millions of retail investors on platforms like Polymarket, Kalshi, and Robinhood in a "taxpayer's Wild West," where winnings could be classified as capital gains (like stocks), gambling income (like a casino), or Section 1256 contracts (like futures). The stakes have been raised by the recently passed "One Big Beautiful Bill Act," which restricts the ability to offset gambling losses starting in 2026. With President Trump publicly weighing the elimination of taxes on gambling winnings while the gambling industry (led by Chris Christie) fights to regulate these markets as traditional betting, users are currently forced to "guess" their tax liability at the risk of future IRS audits and amended returns.

2. The Federal Reserve is recalibrating its economic outlook to account for a surge in labour productivity driven by the widespread adoption of generative AI, which contributed to a revised 2026 GDP growth forecast of 2.3%. While Fed Chair Jerome Powell maintains a "wait and see" approach, internal research and recent National Bureau of Economic Research (NBER) findings suggest a radical "unbounded growth" scenario: a future where productivity triples or quadruples while up to 23% of the workforce faces displacement. This creates a unique "policy dilemma" where the economy achieves robust growth and corporate profitability—exemplified by massive investments in data centers—while hiring remains stagnant. To navigate this, the Fed has signalled a long-run federal funds rate of roughly 3%, a posture that remains accommodative compared to the 3.7% "neutral rate" estimated by the Cleveland Fed.

3. The 2025 holiday season has revealed a stark "sentiment-spending gap," as U.S. holiday retail sales are projected to surpass $1 trillion for the first time in history despite consumer confidence hitting its lowest point since April. According to a new LendingTree report, more than one-third of shoppers (37%) racked up an average of $1,223 in debt this year—driven by a combination of high prices, persistent interest rates over 20%, and the secondary effects of recent tariffs. While GDP grew by 4.3% in the third quarter, the human cost is mounting: 41% of those who took on debt this year are still paying off their balances from the 2024 holiday season, creating a "vicious cycle" of debt that is now expected to last well into late 2026 for the majority of borrowers.

   Headlines

   1. Meta predicts the next pivot in AI will be towards lowering the cost of the technology.

   2. Citadel will be returning $5B to its investors.