That isn't very convincing, as the stock market itself is largely a prediction market. People buy stock to bet on future success, whether that manifest in the form of stock price increases, splits, and/or dividends. It's merely a much more narrowly-focused prediction market.
For that very reason, insider knowledge, and especially the ability to influence future outcomes, become the subject of heavy regulation. And, the lack of such regulation for congressional members is also why their net worth tends to skyrocket once entering office.
That's fair. Insofar as the purpose of the stock market is to allocate capital to companies the market predicts are most likely to succeed, you could argue that trading stocks based on insider information should be legal (though not insider trading by those with the ability to influence outcomes).
But I think the way our current system solves this is by forcing companies to disclose important insider information to shareholders all at once, rather than by letting insiders profit by leaking the information through their market transactions. (The one possibly being related to the other, because insiders who could legally profit by keeping information secret rather than disclose it would be incentivised to do so.) I don't think a similar restriction is feasible for prediction markets, because often the thing you're trying to predict is not something that can be legally cajoled into giving up its secrets.
I'd argue that the "purpose" of the stock market is matching investors with companies that want liquidity. Allowing insider trading hurts the purpose by driving away non-insider trading participants, and it does not really help in any way.
With prediction markets, the "purpose" is information discovery, and "insider trading" actually helps (=> via information from insiders).
Disclaimer: I'm somewhat playing devils advocate here, I personally think that prediction markets are for now mostly an ineffective zero-sum game (and legalized gambling with all the drawbacks that brings).
It's easier to define safeguards and the definition of inside information for stock markets than for prediction markets though. There is plenty of information that should ban someone from prediction markets that also wouldn't meet the definition of material non-public information.
that's a very shallow analogy as the stock market has significantly stronger guardrails to curtain insider trading including fines and jail time these companies lack. But even if you were to bring prediction markets under the purview of the FTC, it would still not be a functioning regulatory scheme since the scope of prediction markets is just so much larger - you can bet on anything.
For that very reason, insider knowledge, and especially the ability to influence future outcomes, become the subject of heavy regulation. And, the lack of such regulation for congressional members is also why their net worth tends to skyrocket once entering office.