Investors and Bettors Flock to Prediction Markets Ahead of US Elections
The upcoming US elections on 5 November have not only captured political interest but also sparked a surge in prediction markets. Platforms like Kalshi, which enable users to trade on political outcomes, have gained unprecedented traction following a pivotal legal ruling in early October.
Kalshi’s Legal Victory and Market Surge
On 2 October, the US Court of Appeals for the District of Columbia ruled in favour of Kalshi, a regulated New York-based platform, overturning a decision by the Commodity Futures Trading Commission (CFTC) to delist its political contracts. Kalshi argued successfully that these contracts serve as economic tools rather than gambling instruments, emphasising their role in providing real-time data to combat misinformation.
Since the ruling, Kalshi has seen explosive growth. By 3 November, the platform reported over $250 million in political contracts, up from $15 million in mid-October. The presidential election market alone accounts for $184 million, with other popular markets including electoral college outcomes and state results.
Rival Platforms and Broader Industry Trends
While Kalshi leads in regulatory compliance, other platforms such as Polymarket and PredictIt dominate in volume. Polymarket, a crypto-based exchange operating outside US jurisdiction, has amassed over $3 billion in political contracts despite regulatory scrutiny. PredictIt, managed by New Zealand’s Victoria University of Wellington, operates under uncertain legal conditions but boasts millions of active shares in US election markets.
The industry is further evolving with the entry of Robinhood, which recently announced plans to offer election event contracts. This move by the stock trading giant, which boasts over 24 million funded accounts, could redefine the competitive landscape.
Challenges and Future Outlook
Despite its rapid growth, the prediction market industry faces ongoing regulatory challenges. The CFTC continues to develop new rules targeting political contracts, and state laws banning election betting conflict with federal rulings. Critics also question the ethical implications of promoting such markets under the guise of investing.
Kalshi and its rivals argue that their platforms improve civic engagement and provide accurate election forecasts. However, discrepancies between prediction market odds and traditional polls raise questions about their reliability. For example, as of 3 November, Kalshi and Polymarket favoured Republican candidate Donald Trump, while traditional polls showed Democratic candidate Kamala Harris leading narrowly.
The rise of prediction markets underscores a shift in how individuals engage with political events. With billions at stake and regulatory uncertainty looming, the coming months could determine the long-term viability and legitimacy of these platforms.
