Markets Shrug Off Israel-Iran Conflict, Polymarket’s $200M Round & a Stablecoin Warning

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Sell, sell.

Welcome to Profit Markets.

I'm Ed Elson.

It is June 25th.

Let's check in on yesterday's market vitals.

All three major indices climbed more than 1% on hopes that the ceasefire between Iran and Israel would take hold.

The Nasdaq and S ⁇ P 500 ended the day at their highest levels since February and oil prices declined.

The yield on tenured treasuries dropped on a weak consumer sentiment report and Bitcoin rose 3% on reports of a GOP crypto regulation bill.

Crypto stocks also surged on that news with Coinbase up nearly 12%.

Okay, what else is happening?

Following President Trump's announcement of a ceasefire Monday night, both Iran and Israel continued airstrikes yesterday morning.

Trump lashed out at both countries, slamming Israel for attacking Iran, quote, right after we made the deal.

But still, he insisted the ceasefire is holding, posting on Truth Social, quote, Israel is not going to attack Iran.

Nobody will be hurt.

The ceasefire is in effect.

He's now en route to the NATO summit, where this ceasefire, and I'm using that term generously, will likely dominate the agenda.

In short, a lot of chaos and a lot of uncertainty still in the Middle East.

Now, how did the markets react?

Well, once again, investors weren't really phased.

The SP 500, the Nasdaq, and the Dow all climbed more than 1%.

Gold fell roughly 2%, and even oil prices fell 5% to a two-week low.

So this is all pretty unusual from the stock market.

I mean, historically, when a geopolitical conflict breaks out out like this, the market will react in two key ways.

First, safe haven assets rise.

Investors go to treasuries and dollars and gold.

Gold typically jumps 5% to 7% at the height of the tension.

And then the second is that risk assets usually fall, particularly stocks, which usually leads to a big spike in the volatility index or the VIX.

But we're barely seeing any of that right now.

In fact, in most cases, the opposite is happening.

So I want to get Scott on the line for this because I want to get his reactions to what is happening in the Middle East, but I'd also like to know if the market's reaction to this is surprising him as much as it's surprising me.

Scott, what are you up to?

I was just watching this horrible show called Sirens.

I'm about to watch a show called Patriot and I'm writing the testimonies, the tributes, whatever it's called, for my book that Castin's been bothering me about.

Do I get a feature?

Oh, yeah.

No, I was thinking about just devoting it just to you

for the enormous success to Ed.

To Ed.

For sincerely,

your father.

Oh my God.

No.

Yeah.

Next one.

What are you doing, Ed?

And when I ask, I don't really care.

I've got you on the line because I have a lot of questions I want to pelt at you.

Let's get to it, my brother.

Okay, so just to start out, I am trying to make sense of how the markets are responding to what is happening in the Middle East right now.

Help me understand what we're seeing.

Why are the markets shrugging?

First off, Ed, when it comes to the Middle East, it's actually a very simple place.

It's easy to understand, and everything you expect will happen, will happen.

And every time the West gets involved, it always ends up going really well.

The market since 9-11 has had such dramatic snapbacks from kind of exogenous geopolitical events, whether it was, you're too young to remember this, but we must have spent the better part of a year about 12 or 15 years ago talking about the collapse of Greece.

And despite the fact that it only represented 2% of the European economy, we were convinced it was going to start a domino effect and take down the entire economy.

And it just didn't happen.

And then when 9-11 happened, New York real estate went down 15, 20% for a good 30 or 60 days and then snapped back, which was sort of a larger metaphor for the market in the sense that the market is so, has been really the last 25 years, has been so incredibly resilient in technology, productivity, prosperity, what feels like, although it may not feel this way, relative

peace and prosperity and stability actually, over the last 25 years versus the previous couple thousand.

that every time the market has gone down because of an exogenous shock, it ends up that that was a buying opportunity.

And so the market now almost looks at these shocks.

It's moving straight to the opportunity part where it's dying to buy back in.

So the dips are never that serious.

And we're now at a point where,

I mean, one of two things is happening.

Either the market believes the underlying economy is just so goddamn strong and resilient that an exogenous shock like this doesn't.

doesn't matter much, or that there's no reason to believe this is much of an exogenous shock.

That, okay, the Strait of Hormuz is not going to be attacked because all that hurts is China and India,

and that the economy will continue to grind on.

People will continue to order an espresso and go to Disneyland, regardless of what

the success of a missile strike on an American air base in Qatar or Iraq is.

So these exogenous shocks, it's,

in other words, the market each year gets harder and harder to scare.

Yeah.

How much of this do you think is taco at play?

Because we've seen similar things happen over the past couple of months where Trump says something kind of crazy that, you know, four or five years ago would have probably moved the markets, but then the markets don't really react.

And the explanation for that was, as Robert Armstrong coined, taco.

Trump always chickens out, i.e.

the markets just don't really take what he says as all that serious.

I think it's that and it's a variety of other things.

So the fact that Trump has now extended the deadline for TikTok, at some point, when you keep telling someone, I'm definitely leaving you next month, and that was 60 years ago, you start to believe there's a fairly good chance this person's going to stick around.

Whether, I mean, his threats just don't carry any weight any longer.

Having said that, I think essentially what the market is absorbing right now, in terms of what is a fairly muted response and oil returning to levels

previously, the attack is more based on what's happened most recently with Iran.

And that is Iran has, again, similar to the

reciprocal strikes from the Hezbollah attack, is that the markets appear to have guessed it right.

And then it said, okay, there's a little bit of risk here, but it's nothing to worry about

because Trump doesn't really want to engage in a war.

We're not going to see boots on the ground.

He wanted to just jump on the macho stage and take off his own shirt and have the audience go crazy for him as well.

He's accomplished that.

This is a victory.

He does not want to go back in.

He wants to declare victory and leave, which he has already done.

And just as importantly, maybe even more importantly,

Ayat al-Khomeini and the IRDC appear to have done what they did after the Hezbollah attacks, and that is create something that's performative.

In other words, such that he can internally say,

I'm not scared.

I just fired missiles at U.S.

military installations in Qatar and Iraq.

But by the way, he gave Qatar heads up.

He gave the U.S.

heads up.

Nobody was hurt.

So it's enough such that he can hopefully look strong to his internal constituents, but at the same time, not risk escalation.

So more so than Trump.

It was the market guessing that Iran would do exactly what it's done so far.

And by the way, that's not to say it can't spin out of control, see above the Middle East.

Yes.

But so far, the market has guessed correctly.

The heat has already gone from, you know, scorching to just like kind of an uncomfortable warm summer's day.

So what do you think it would take to start, and this is my final question, and then I'll let you go to bed.

What do you think it would take to get the market to start selling?

I mean, the only real price action we've seen, downward price action, was Liberation Day.

That was the big moment.

And then the markets came back up.

And then ever since then, it's been a series of shrugs, shrugs on tariffs going back up, tariffs going back down, conflicts with China, conflicts with Israel, Israel, striking Iran.

The market keeps going eh, eh, eh.

I'm not even going to venture to guess what geopolitical event would result in the markets with serious drawdown.

I think the most likely on a risk-adjusted basis event, if I had to bet on if the market was down 10 or 20%, I mean, it really crashed globally, maybe in 30%, and you had to guess what was the event.

My guess would be that a bunch of large

of or that several of the largest largest purchasers of NVIDIA GPUs

and also a ton of consumer feedback that AI

was vastly underperforming projections in terms of consumer uptake and how to monetize it.

With 34% of the SP now represented by the Magnificent Seven that are all in one way or another, very sympathetic to AI and the amount of money and valuations that have been driven by this AI future,

it would be as if in, say, 2015, people realized that the iPhone and GPS and mobile phone technology weren't a big deal.

It just would crash the entire market or take the market substantially down.

But nothing Iran-related.

My sense of recent history is that the global economy is so innovative and so greed-driven

that it can survive.

As long as radiation isn't coming my way, I'm not especially worried.

Yeah.

And that this

war in Iran,

it's just very unlikely.

I think people have come to believe that the economy turns on

and that what's happening overseas, the biggest investors in the world have figured out a way, the biggest sources of capital have found a way to insulate themselves.

I mean, keep in mind,

since the Civil War, there's never been a war on our own land.

Russia has lost a million people,

but all of Western Europe, despite the fact it's being invaded,

refuses to sacrifice one person.

So the majority of institutional pools of capital have fallen under correctly or incorrectly this basic notion that they are entirely safe, they are immune, they are protected.

from any real

exogenous event, that the market finds a way to heal, to heal really quickly.

I saw the buildings come down to 9-11.

Down 11%,

flat a month later.

Yeah, it was Star Wars.

It was a foreign nation, people we didn't understand, hated it so much that they trained and found willing people to fly

American manufactured aircraft into two of the tallest buildings ever built and killed 2,800 people.

And within six weeks, it was all kind of like champagne and cocaine again.

It just wasn't.

so that it feels as if humans and the economy have become incredibly resilient to exogenous geopolitical actions.

All right.

Thank you, Scott.

I'll let you go to bed now.

See you guys.

See ya.

After the break, a look at a new funding round from the world's biggest prediction market.

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We're back with Profit Markets.

Polymarket, the world's biggest prediction market, is in talks to raise more than $200 million in a new financing round.

The company, which was founded in 2020, became popular last year for allowing people to bet on the US presidential election.

It allows users to bet on all sorts of real-world events, such as elections and sports, and even Fed rate decisions.

This new round, led by Founders Fund, will value Polymarket at more than $1 billion.

So, Polymarket, which as of a couple of years ago was a pretty obscure website, is now set to become a unicorn.

It's been just a stunning rise for this company.

Cumulative trading volume recently surpassed $9 billion, a nearly 48x increase in less than a year.

The number of monthly active traders on the platform is growing by 74% per month.

They recently hit nearly half a million users at the beginning of the year.

So just incredible growth.

And now they're going to raise another $200 million

to fund even more growth in a category that is already exploding.

So Polymarket is the biggest platform.

But we've also discussed another big prediction market on this podcast, and that is Calci.

Calci is also seeing massive growth.

They recently launched sports betting, and that is generating roughly $1 billion in trading volume in just five months.

And unlike Polymarket, which is illegal in the US, Calci is legal here.

It is federally approved by the CFTC.

It's the first legal events exchange in America.

And if you want to know more about that company, I interviewed the CEO and the founder on my other podcast, First Time Founders, just a few months ago.

So clearly.

The world of prediction markets is on the up and it appears that it is here to stay.

There was a lot of debate over whether this stuff would stick after the election.

It had a lot of hype during the election, but it apparently is going to stay.

This is still very popular.

So how should we feel about that?

Well, on the one hand, there's pretty good reason to be anxious about it.

Scott has talked a lot about this.

He's warned that we are increasingly devolving from an investment economy into a gambling economy, whether it's the rise of day trading on Robinhood or even the explosion of sports betting.

Roughly half of American men under 50 now have an online sports betting account.

I mean, Americans are increasingly becoming addicted to gambling.

And as you might expect,

it doesn't often lead to good places.

States that have legalized online sports betting have seen a 28% increase in bankruptcy filings in just four years.

So gambling is kind of a problem and prediction markets won't really do much to help.

They are essentially allowing Americans to gamble not just on blackjack and basketball games, but also on interest rates and political elections and cultural events.

This is really the financialization of everything.

And that is kind of concerning.

At the same time, though, I do think we need to give these prediction markets some credit.

Because as the CEO of Calci, Tarek Mansor, argued on my podcast, there is one great benefit that prediction markets have proven.

And that is that they are remarkable tools for price discovery and also for truth discovery.

I have never said, by the way, these markets are always accurate.

Nothing else.

We can't say what the future holds, right?

That doesn't make any sense.

But what I can say is these markets are more accurate than alternatives.

And I do stand by that.

Right?

Like if you look at the mean error of our forecast to everything else, we've been the most accurate on inflation forecasts.

Better than the Bloomberg Economist survey, a variety of other surveys.

Yeah.

Fed interest rate decisions, climate and weather, even earthquakes.

That doesn't mean we can forecast forecast earthquakes.

That's a crazy statement.

I'm not making that statement at all, but the alternative is like you hear a pundit on the news, or like you hear someone saying something crazy because they want to get some press or whatever.

But now you have a mechanism to like, hey, if you have some information about this, come put it to market and get paid for it.

And then we get an accurate price from that.

But

these should not replace polls.

They're doing something different.

This is an additional source of data.

I keep saying more truth.

I don't say exclusive truth or like we're the only truth.

So that was Tarek Mansour of Kelchi, and we recorded that before the election.

And let's not forget the single best predictor of the presidential election last year wasn't the political commentators or the political pollsters.

It was indeed the prediction markets, markets like Kalchi and Polymarket and Predictit.

They all had it priced in before anyone else that Trump would indeed win the election.

And they've proven this not just in politics, but in many other areas of society.

So despite all the debates we had in the fall, the evidence is clear.

Prediction markets are really good at predicting the future.

Like the stock market, they do provide insight into basically anything and everything that is happening in the world.

For example, I'm very interested in what's happening with the New York Mayor race right now.

And I'm currently looking at the Calci dashboard.

It's got Cuomo just an inch ahead of Mamdani.

We'll see if that turns out to be right.

But that to me is of value to society.

And I would also argue that it is of more value to society than, say, a casino, where the only point of its existence is to gamble.

So these markets do a little bit more.

They tell us about the future.

So for now, I'm tentatively pro-prediction markets.

I know Scott is against, but I think they're valuable.

And I think that if we believe gambling at a casino is okay, then I don't see why we shouldn't view this as okay too.

The only thing I would stress is that these prediction markets can only exist in a framework that is highly regulated.

The danger of letting people bet on, for example, interest rates is that there is a good possibility that someone with a lot of power, i.e.

Jerome Powell, could go in there and start betting on these markets as well.

In other words, unregulated, insider trading could just get totally out of control.

And that's why we need really strong regulation on these prediction markets.

I think that means ID checks.

I think it means age verification.

And I also think it means absolutely no crypto.

We cannot have anonymous traders betting on events from untraceable crypto accounts.

That is a huge problem.

By the way, it's also my biggest issue with Polymarket, which is powered by crypto.

So overall, I'm down with prediction markets.

And quite frankly, as we're seeing, the train has already left the station.

They're here.

They're staying.

But we have to do it with guardrails.

We need protections against insider trading and we also need to be clear with people about the downsides this is very much like gambling and like gambling it can be fun but if you get addicted and it's very easy to get addicted well it can also be devastating

Okay, the Bank for International Settlements, which is basically the central bank for central banks, released a report yesterday that heavily criticized stablecoins.

The report argued that stablecoins, quote, fall short of requirements to be the mainstay of the monetary system.

And to translate that, it basically means that stablecoins flunk the basic tests for stability.

The BIS also added that there are better ways to meet demand for innovation in the monetary system.

This is coming at a time where many American companies are basically lining up to get into the stablecoin game.

JP Morgan, for example, they just announced they are launching a stablecoin-like token.

Walmart and Amazon and Expedia are all having similar discussions.

Circle, the stablecoin company, which recently IPO'd, that stock is up 750% since its debut.

And meanwhile, the Genius Act, a bill that would lay down the legal groundwork for stablecoins, has passed in the Senate and it is now working its way to the House.

So in short, stablecoins are having a big moment right now.

Now, what are stable coins?

I'm sure you might be asking.

asking.

Well, in short, a stable coin is a cryptocurrency that is pegged to a fiat currency, such as the US dollar, in order to be, well, stable.

I mean, the big problem with crypto is that every asset is extremely volatile, which makes it very difficult to transact in the crypto world.

You know, people used to say Bitcoin, for example, is a great form of payment.

But over the years, everyone started to realize actually Bitcoin is way too volatile.

It's way too unstable.

You can't pay for a burger, say, with Bitcoin if the price is going up or down 10% every week.

That's not a good payment system.

So the crypto industry came up with a solution, and that is the stablecoin.

You take crypto, a form of currency that was sold to us as borderless, decentralized, independent from government, and then you peg it to something like the dollar, an asset that is none of those things.

So you might be thinking, okay, a currency whose value is backed by the full faith and credit of the US government, that doesn't sound very innovative at all.

And you would be right.

I mean, yes, these stablecoins are on the blockchain, but in terms of what they're doing for society, it isn't really anything new.

It isn't some massive technological advancement.

It is essentially fiat currency pretending to be something else.

And I'm just going to quickly play you a clip of how this was described by the head of the monetary and economic department at the BIS, because he laid out the circular reasoning of these stable coins pretty much perfectly.

The prevalence of stable coins show the pervasive need of crypto to piggyback on the credibility of central bank money.

Crypto started by turning its back on central bank money, but it has quickly rediscovered the need for a stable unit of account,

which is best provided by real money issued by the central bank.

So if you like, the prevalence of stable coins shows that if central bank money did not exist, it wouldn't need to be invented.

That was Hyun Song Shin from the BIS.

And by the way, he called this out three years ago.

And now here we are in 2025, and there's still been no real innovation.

The only innovation here is, one, that it isn't regulated.

which basically just means more fraud and more crime, as we've seen.

And two, is that it all happens outside of the purview of the credit card companies like Visa and MasterCard.

It's on a different system.

And the argument has been that because it's on a different system, you don't have to pay these onerous credit card fees to Visa and MasterCard.

But even that doesn't hold up.

Because yeah, you don't have to pay fees to Visa, but you have to pay fees to someone else.

Coinbase, for example, they've collected $2 million

in exchange fees in the past 24 hours alone.

They take a cut of every transaction.

They are, like Visa, the middleman.

They're essentially Visa, but with different branding.

Now, Coinbase would would argue, well, our fees are lower, and that is true.

But let's not kid ourselves.

Coinbase is early to this game, and the fees are going to go up.

I mean, just give them a few years, let them get some more traction.

Soon enough, I can guarantee you the fees are going to look a lot like MasterCard.

So what do we have then?

A currency that claims to be better, cheaper, more technological, but that in effect is no different at all.

So why then would Walmart and Amazon care about any of this stuff?

Well, the answer I think is a lot more boring than you might expect.

I think Walmart basically just wants to create a giant gift card program.

I think they realize that it's pretty annoying to have to pay these interchange fees to Visa and MasterCard.

So why not create a system where instead of paying with a credit card, you can pay for products at Walmart with a stable coin called, say, Walmart coin.

Maybe you even get a special Walmart card that's loaded up with all your Walmart coins.

That way, we can cut out the middleman that is Visa, and poof, the interchange fees are gone.

So that's fine.

It would be a great thing for Walmart.

It wouldn't really do anything for us, the consumers.

We'd get no value.

But yeah, it might add a couple of basis points to Walmart's bottom line.

So that's all fine with me.

But let's not pretend that these stable coins are some great technological innovation.

Let's not pretend that these are going to alter the course of humanity as many people online seem to think, and very loudly, I would add.

This is one of two things.

It's a fake fiat currency that gets to be unregulated for the time being, or it's a fun way for corporations to revamp their gift card programs.

That's basically it.

So in sum, the stablecoin hype, all the hype on Circle, all the hype on these new stablecoins at these companies, it's hype.

And it's too much hype.

It's not that exciting.

It's not that innovative.

And I think it's time we all put our energy into something else, something more worthwhile.

Okay, that's it for today.

Thanks for listening to Croft New Markets from the Vox Media Podcast Network.

I'm Ed Elson.

I'll see you tomorrow.

you have

in kind

reunion.