It’s a striking reversal of fortune for the election-betting complex in the US after a three-year crusade by regulators against the prediction markets.
Americans are about to vote with their wallets in a big way.
Financial exchange startup Kalshi on Thursday got the green light to begin offering day traders, wannabe political pundits and financial institutions the chance to wager thousands of dollars on whether Democrats or Republicans will control Congress next year. Some financial firms will be allowed to bet as much as $100 million.
The Silicon Valley-backed company debuted the first fully regulated election-betting markets in the U.S. shortly after District Judge Jia Cobb in Washington rejected a bid by Wall Street regulators to temporarily block the company from launching them. The Commodity Futures Trading Commission, the top U.S. derivatives cop, says the markets violate federal and state law.
How long the markets will last is unclear. The CFTC quickly appealed the judge’s ruling, and the agency’s lawyers indicated they plan to ask for a stay. But Kalshi’s markets are already drawing interest: As of 3:30 p.m. Washington time, 50,000 contracts had been traded, according to the company’s website.
Election betting has existed in the shadows of American politics for generations, through offshore betting sites like Polymarket and academic ventures such as PredictIt. But Kalshi’s markets could catapult it onto the main stage of election season, just in time for November.
It’s a striking reversal of fortune for the election-betting complex in the U.S. Over the last three years, the CFTC has waged a regulatory crusade against the prediction markets. For critics, wagering on voting outcomes is a risky development that could threaten the sanctity of American elections at a perilous moment when balloting integrity is a major issue. Supporters — who include former White House officials, Silicon Valley leaders and prominent economists — say the markets are superior to public opinion polls, in part because participants have money on the line.
Sen. Jeff Merkley (D-Ore.) called it a “nightmare” scenario that could allow wealthy players to put their “thumb on the scale” in elections.
“Think about that anonymous political power or that anonymous corporate power that says, ‘Not only do we want this candidate to lose or that candidate to win, we’re going to bet on the person that we want to win,’” Merkley said in an interview. “It’s a deeply corrupting combination of dark money and election bets.”
Kalshi welcomed the judge’s ruling as a historic victory.
“Today marks the first trade made on regulated election markets in nearly a century,” CEO Tarek Mansour said in a statement. “Now is finally the time to allow these markets to show the world just how powerful they are at providing signal amidst the noise and giving us more truth about what the future holds.”
The CFTC didn’t respond to a request for comment.
Kalshi is offering traders within the U.S. the ability to bet on which party will control either the House or the Senate following the November elections, though the company has signaled plans for other markets as well. By comparison, New York-based Polymarket has a wide array of election-themed markets, but the company is not permitted to offer trading to people inside the U.S. And on PredictIt, a site affiliated with a university in New Zealand, traders can wager on the presidential election but with strict spending limits.
Gambling has already become enmeshed in the 2024 elections. Day traders have ratcheted up their bets on the presidential race since Vice President Kamala Harris took over the Democratic ticket. Betting odds from PredictIt and Polymarket have become fixtures in news coverage and on cable TV. In the immediate aftermath of Tuesday’s presidential debate, Fox News host Laura Ingraham called out how Harris had pulled even with Donald Trump — citing not opinion polls but the betting markets. And the companies themselves have sought to bolster their profile among the Washington elite.
During the Democratic National Convention, Kalshi touted itself as “The first legal election market in the US” on the back of a truck driving around downtown Chicago. Polymarket CEO Shayne Coplan was photographed across the table from Donald Trump Jr. at an event during the Republican National Convention. His company also held a party at the DNC.
Those in favor of the markets say they can be a crucial tool for investors looking to offset the risks that their financial investments may face from a change in administration and therefore, a shift in policy toward certain industries.
Others say the data generated by the markets is an increasingly critical gauge of voter sentiment.
“Political polling has a long and storied history in the United States,” said Justin Wolfers, a public policy and economics professor at the University of Michigan. “Political polling is also pretty close to being dead.”
The movement caught new wind last week when Cobb, who was appointed by President Joe Biden, threw out the CFTC’s prior rejection of Kalshi’s plans. But hours later, the CFTC asked for Cobb’s ruling to be temporarily put on ice so the agency could review her opinion.
On Thursday, Cobb denied the CFTC’s request, ruling that the CFTC had exceeded its statutory authority when it rejected Kalshi’s proposal because the products did not involve illegal activity or gaming.
The CFTC has resisted political betting in the U.S. derivatives markets for years. Officials say such trading is already prohibited by federal and state law — and warn of its potential ripple effects on U.S. elections. Chair Rostin Behnam said in May that election-betting derivatives products could “commoditize and degrade the integrity of the uniquely American experience of participating in the democratic electoral process.”
“We saw what happened when, three years ago, a certain candidate didn’t win the election,” said Cantrell Dumas, director of derivatives policy for the financial watchdog group Better Markets. “Can you imagine a situation where people with real money in the election [are] betting? … The integrity of our Democracy is already in a fragile state.”
Kalshi’s launch will make it more difficult for the CFTC to shut down trading in the future, the agency has said.
The agency is working on a proposed rule for prediction market operators. The drafted rule, issued earlier this year, would effectively ban derivatives products that act as wagers on political elections, sporting events and even awards ceremonies like the Oscars.
“There’s a lot of caution here,” said Pratik Chougule, executive director of the Coalition for Political Forecasting and a long-time political trader. “We are going to have election betting in some shape or form. They’re going to be referenced and applicable to a greater degree in the mainstream political environment and disclosure. There’s no question about that. The question is: How does it happen?”
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