European Regulator Warns: Crypto Could Face Pressure if Tech Stocks Are Sold
ESMA has questioned Polymarket and Kalshi regarding their lack of authorization for user access in the EU, while warning that a potential sell-off in tech stocks could spill over into crypto assets.
The European Securities and Markets Authority (ESMA) reported that Polymarket and Kalshi lack the EU authorizations typically required to serve EU users. The agency emphasized that the contracts offered by prediction markets may be subject to different regulations depending on their nature.
On these platforms, users trade on future events such as elections, sporting matches, cryptocurrency prices, and economic developments. The contracts provide a fixed payout if a specific outcome occurs; otherwise, they pay nothing.
ESMA noted that while the two platforms restrict users in some EU countries, they have not added all member states to their restricted lists. The agency stated that this could increase the risk of providing unauthorized services and violating existing restrictions aimed at retail investors.
Legal status of prediction contracts varies by agreement
The regulatory body also questioned how effectively the platforms block VPN connections, which can be used to hide user locations. In July, France instructed internet service providers to block access to Polymarket, while similar restrictions have been implemented in countries such as Switzerland, Poland, Singapore, Belgium, Portugal, Spain, and Brazil.
The legal status of the contracts can vary based on their content. They may be considered financial instruments, crypto-assets under MiCA if based on distributed ledger technology but not classified as financial instruments, or gambling products under national law. Contracts deemed financial instruments may be subject to binary option restrictions aimed at retail investors.
ESMA also noted that major tech companies have borrowed heavily to finance AI spending; it stated that these expenditures have inflated valuations, increasing the risk of an AI bubble. A warning was issued that if AI investments fail to meet expectations or if debt pressure triggers a sell-off in tech stocks, major investors might sell their crypto-assets to meet liquidity needs.
Bitcoin fell by 35 percent in the first half of 2026, while losses in smaller tokens reached 61 percent. With more than $5.5 billion in outflows from spot Bitcoin exchange-traded funds in the US, spot Ether funds also saw outflows of approximately $2 billion. ESMA reported that a new sell-off in tech stocks could increase pressure on crypto-assets.