US Defense Secretary Pete Hegseth has barred all Pentagon personnel from using undisclosed information to place wagers on upcoming military action, including trading on prediction market platforms such as Kalshi and Polymarket.

In a memo circulated to senior Pentagon officials and defense agencies on Tuesday, Hegseth said all Department of War personnel are prohibited from engaging in financial transactions based on nonpublic information, whether classified or unclassified.

"Make no mistake why this matters. Our enemies watch movements in these markets," Hegseth wrote. "The lives of our Service members often depend on the enemy not knowing what is coming."

"Beyond operational security, financial stakes can warp judgment. A logistician with money riding on a strike date has an interest in that date. An analyst with a position on an outcome has an interest in that outcome," he said.

Prediction markets allow participants to buy and sell contracts tied to the outcomes of real-world events. Kalshi operates as an exchange regulated by the Commodity Futures Trading Commission (CFTC), while Polymarket is a crypto-based platform where users trade on political and geopolitical outcomes. Because prices on these platforms update in real time as traders buy and sell, wagers placed on inside knowledge can leave a visible trail in market data — the exposure Hegseth pointed to when he wrote that enemies watch movements in these markets.

The directive follows the April indictment of US Army soldier Gannon Ken Van Dyke, who allegedly used classified information about the operation to capture Venezuelan leader Nicolás Maduro to make more than $400,000 on Polymarket. Prosecutors allege that Van Dyke took part in planning and executing the operation and then used his advance knowledge to wager on outcomes related to Maduro's removal. He has pleaded not guilty to all charges.

As previously reported, the CFTC and the US soldier accused of the illegal Polymarket bet have sparred over the interpretation of prediction markets — a regulatory dispute that now forms the backdrop to the Pentagon-wide ban.

The issue is not unique to the United States. In February, Israeli authorities arrested and indicted a military reservist and a civilian for allegedly using classified information to place bets on Polymarket tied to Israeli military strikes on Iran. With prosecutions now underway in both countries, the collision between state secrets and openly traded event contracts is being tested in courtrooms on both sides of the Atlantic.

This article was originally published by Cointelegraph.