Americans may (finally) be able to bet on US elections

Polymarket has been one of the most-talked about companies during this election cycle, as the prediction market site has become a go-to source for tracking election odds. Nearly $760 million has been wagered on the outcome of the presidential election on Polymarket through August 2024, and even Bloomberg has now incorporated the company’s election odds data into its terminals.

The irony of Polymarket’s success is that it can’t operate in the United States.

After the CFTC fined Polymarket in January 2022 and ordered it to wind down its markets that “do not comply with the Commodity Exchange Act and applicable CFTC regulations,” the prediction market platform moved its operations overseas, and Americans have had no way to trade the US election markets (except through the use of VPNs, of course). However, that may be changing soon.

Kalshi, a New York-based prediction market platform that offers a variety of US regulator-approved event contracts, won a federal lawsuit against the CFTC regarding its plan to offer contracts based on which political party would control the House and Senate after the November election.

For context, Kalshi received CFTC approval to operate as a contract market in the US in 2020, and on August 29 of this year, the New York-based company was approved to operate as a derivatives clearing organization. However, the CFTC blocked Kalshi from offering election contracts in 2023, concerned that “they would involve unlawful gaming and other activities not in the public’s interest.” Kalshi subsequently sued the CFTC in the U.S. District Court for the District of Columbia, and last Friday, Judge Jia M. Cobb ruled in Kalshi’s favor.

The CFTC has since filed a motion to ask Judge Cobb to stay her order for 14 days after publishing her opinion, but, assuming the CFTC declines to appeal and/or loses an appeal, it looks like Americans will soon have access to at least one election betting market. Sherwood reached out to Kalshi regarding a possible timeline for this market to go live, but the company declined to share any details.

So what does this mean for the prediction market…market? First, it's important to note that this lawsuit only concerned two election markets: control of the House and the Senate. However, depending on Judge Cobb’s opinion and the CFTC’s response, this ruling could open the door for Kalshi to launch an expanded list of regulator-approved election contracts, including the outcome of the presidential election.

Additionally, Kalshi may be able to attract more institutional money to its election markets. In April 2024, Susquehanna International Group, Jeff Yass’s trading firm, launched a trading desk for event contracts, and the firm planned to act as a market maker for transactions on Kalshi. With regulator approval and a market maker on board, Kalshi is well-positioned to handle seven-figure position sizes that would help attract institutional money.

My question is: what comes after the election cycle? Obviously, the presidential election has garnered a lot of eyeballs, but it only happens once every four years. I’m curious to see if Kalshi will be able to build off election momentum (assuming that the company is able to launch its election markets) and continue to attract more capital to its other offerings, such as inflation readings and Federal Reserve rate cuts.