Wall Street Roundup: How Polymarket Is Blurring the Lines Between Investing and Gambling—and Why It's Dangerous

I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand.

It's time for some money rehab.

All right, it is time for a roundup of the biggest stories on Wall Street and how they're going to affect you and your wallet.

If you've spent any time watching sports lately, you've definitely seen the ads for DraftKings, FanDuel, Points Bet.

Legal sports betting is mainstream now, and the industry is printing money.

Americans wagered over $120 billion on sports in 2023 alone.

But these apps are no longer at the forefront of the betting market.

There is a new darling in this world.

Polymarket.

Polymarket is a prediction market, which means it's a platform where people bet money on future events.

Truly any event.

So you can bet on a playoff game or you can bet on an election, but you can also bet on how many album sales Tyler the Creator will pull in this week or who the next editor of Vogue is going to be or how many measles cases there will be this year.

It sounds a little dystopian, and it kind of is.

Now, to be super clear, I am not saying that you should place those bets, but what I am saying is that you can, which is a pretty recent change.

Polymarket is technically built around event contracts, not legally defined as gambling yet, and it has been skating in regulatory gray space for years.

And while Polymarket has some new power, it is not a new company.

Polymarket was launched in 2020, but then it was kicked out of the U.S.

in 2022 by federal regulators because it was classified classified as an unregulated exchange.

That year, the CFTC, that's the Commodity Futures Trading Commission, investigated Polymarket for operating as an unregistered market.

But earlier this year, that investigation was quietly dropped.

And now Polymarket bought a derivatives exchange called QCX, and that acquisition will help Polymarket legally re-enter the United States.

This tells us something big.

The winds are shifting.

Like I mentioned in last week's episode about the tokenized shares on Robinhood, crypto is back in the conversation in a really big way, and not just with the bros on Twitter, on Capitol Hill.

Which brings us to our next story.

In a rare moment of bipartisan energy, Congress passed the Genius Act with the support of two Democrats and two Republicans.

Yes, this is actual bipartisanship in this economy.

And it is so lovely to see.

So what is the Genius Act?

Well, it stands for guaranteeing essential non-bank issuance of United States stablecoins.

Yes, they really, really wanted that acronym.

The big idea is that this act creates a legal framework for stablecoins, a specific category of cryptocurrency designed to do something most crypto assets don't, maintain a stable value.

So unlike Bitcoin or Ethereum, which can swing wildly in price based on speculation, hype, or Elon Musk's latest tweet, stablecoins are engineered to stay pegged to a specific currency, most commonly the US dollar.

That means one unit of a stablecoin is supposed to always, always, always equal one US dollar.

So why were stablecoins invented when crypto bros kind of hate the dollar?

Well, because early crypto had a usability problem.

Bitcoin was never practical for everyday transactions.

It is slow, it is expensive to move, and it's way too volatile.

Nobody wants to pay four bucks for a coffee with Bitcoin only to realize that they gave away 40 bucks the next day because the price spiked.

Am I right?

Stablecoins coins were built to solve that.

They offer the speed and decentralized functionality of crypto without the roller coaster price swings.

It is digital cash that can move across wallets, platforms, or even borders in seconds without bank fees, without business hours, without traditional intermediaries, basically without a trace.

There are a few different types of stablecoins.

Fiat collateralized, where each coin is supposedly backed one-to-one by cash or cash equivalents held in a reserve.

Think of it like a digital IOU or how the US dollar used to be pegged to gold.

If you've heard of USDC or Tether, those are fiat collateralized stablecoins.

There's another kind of stablecoin that are crypto-collateralized, which are backed by other cryptocurrencies, and that makes very little sense to me.

Kind of like a Russian doll of...

volatility.

And then lastly, there are algorithmic stablecoins, which use code, not collateral, like dollars or crypto, to try and keep the price stable.

But many of these have collapsed spectacularly.

You probably heard of the big implosion of Terra Luna.

The Genius Act focuses primarily on fiat-backed stablecoins, basically creating rules for how they're issued, what kinds of reserves must be held, and how those reserves are audited.

The goal is to prevent another meltdown like we saw with the algorithmic coins and create a version of digital dollars that's actually safe, transparent, and usable at scale.

The Genius Act creates a legal framework for stable coins to exist in a regulated environment.

That way, if a coin depegs like Terra, there are rules and protections in place.

Interestingly, the traditional finance world is watching closely because stablecoins aren't just for crypto bros anymore.

Citi is considering launching its own stablecoin.

Stablecoins are becoming the backbone of a new digital payments infrastructure, and the U.S.

is finally catching up to that reality.

And in some ways, it looks like a win.

Public markets are changing.

There are fewer public companies now than there were in the 90s, 90s, and the wealth gap feels wider than ever.

And valuable venture rounds, private debt deals, and hedge funds are being kept by the already wealthy.

So when someone sees a polymarket bet on whether the next Treasury Secretary will be from Goldman Sachs or BlackRock, well, that doesn't feel so unserious anymore.

Maybe it feels like a way to engage in a system that feels increasingly closed off.

And I get that appeal.

But let's call it what it is.

Speculative investments are just that.

Speculative.

This kind of trading has a lot more in common with gambling than it does with actual investing.

And when the stakes are your money, you want to be really clear on the difference.

The last story today is about another alternative investment that is going through some changes.

Luxury watches, Rolexes, or paddocks, big names with bigger price tags.

These aren't just risk handy anymore.

For some, they're an entire subclass of alternative investments.

I did an entire special at CNBC all about alternative investments.

I talked to a truffle farmer.

I talked to a wine collector, a sneakerhead.

There are a ton of different alternative investments out there.

Handbags, Pokemon cards.

It's a whole financial playground out there beyond your Roth IRA.

And depending on the investor, it can be all fun or all function, but at best, it's both.

So let's rewind back to watches.

There was a moment during the pandemic when luxury watches went viral as an investment play.

Meme level frothy.

And while that market has calmed down, it is still really fascinating.

So let's double click on it.

Luxury watches have been trending down for the last two years.

According to the Bloomberg Watch Index, yes, that is the thing, prices have dropped about 10% in that time period.

A major secondary marketplace, Chrono24, has their own index, which puts the price drop closer to 20%.

But short term, only down 2 to 3%.

And here's where it gets interesting.

Even though overall prices on the second-hand market are down, individual watch prices for new watches, especially gold and silver ones, are actually up.

Because metal prices are rising, as are the prices of luxury goods.

So new watches, more expensive than ever.

Old watches, not holding their value as well.

And that tells us something.

You'd think with inflation and asset protection top of mind that people would be scooping up collectible watches, but they're not.

Despite wait lists that span years for brands like Paddock, secondary markets are lagging.

So, what does this mean?

Well, it could be a normal market correction after the hype, or maybe the ultra-wealthy are getting pickier, or even brace yourself, a little more pinched.

For today's tip, you can take straight to the bank.

If you already own or are thinking about buying a gold watch as an investment, you know that you need to get it appraised.

But not all appraisals are created equal.

Make sure your appraiser is certified by a professional organization like the National Association of Jewelry Appraisers or the American Society of Appraisers.

And here's a pro tip that most people miss.

Ask for the detailed breakdown of the appraisal, not just the retail replacement value, but the actual melt value of the gold, the craftsmanship premium, and the brand-specific resale comps.

That way, you know whether you're holding an asset or just wearing one.

Money Rehab is a production of Money News Network.

I'm your host, Nicole Lappin.

Money Rehab's executive producer is Morgan Lavoie.

Our researcher is Emily Holmes.

Do you need some money rehab?

And let's be honest, we all do.

So email us your money questions, moneyrehab at moneynewsnetwork.com, to potentially have your questions answered on the show or even have a one-on-one intervention with me.

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And lastly, thank you.

No, seriously, thank you.

Thank you for listening and for investing in yourself, which is the most important investment you can make.