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Prediction markets have become an increasingly prominent part of the digital asset and decentralised finance landscape. In simple terms, they allow participants to take positions on whether a particular future event will or will not occur. Depending on the platform, that event might be the outcome of an election, a sporting event, a decision by a central bank, the release of economic data or almost anything else capable of being objectively and definitively determined.

The concept itself is not particularly new. Betting markets have long allowed participants to speculate on future events, and financial markets routinely allow investors to take positions on future movements in prices, rates and indices. What is different about many newer prediction markets is the technology through which they operate and the considerably wider range of events on which markets can be created.

Blockchain technology has made it possible for prediction markets to operate using smart contracts, digital assets and decentralised infrastructure, potentially without the traditional bookmaker, exchange or other intermediary sitting at the centre of the transaction.

This in turn creates an interesting regulatory question. A prediction market may look economically similar to traditional betting in some respects and to a financial derivative in others. In some cases, it may potentially be both.

For businesses proposing to establish or operate prediction markets using a British Virgin Islands (“BVI”) company, two pieces of legislation require particular consideration: the Virgin Islands Gaming and Betting Control Act, 2020 (as amended) (the “Gaming Act”) and the Securities and Investment Business Act, 2010 (as amended) (“SIBA”). We will also briefly consider whether the regulatory regime under the Virtual Assets Service Providers Act, 2022 (as amended) (“VASP Act”) might also be relevant to prediction markets.

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