As Americans get ready to head to the polls in less than two months, a new court ruling appears to have opened the door for election-based prediction markets—sites that let bettors wager on the outcome of political races—to expand to the U.S. The ruling has implications not only for bettors but for Polymarket, a crypto-powered prediction market that has become a fixture in news reports about whether Donald Trump or Kamala Harris is likely to win the election.
Despite its popularity—including nearly $500 million in trading volume in August—Polymarket does not operate in the U.S. due to regulatory scrutiny from the Commodity Futures Trading Commission, the agency that oversees derivatives markets.
On Friday, though, a federal judge in Washington, DC restricted the CFTC’s power to restrict electoral betting markets by siding with another predictions market called Kalshi, which claimed the agency could not bar it from letting U.S. customers bet on which party would win each house of Congress in elections.
While it is still unclear how the ruling will impact Polymarket—Judge Jia Cobb has yet to release her full reasoning beyond Friday’s one-page order—the decision could pave the way for electoral betting markets in the U.S. and defang the CFTC’s ability to regulate the companies behind them.
Betting on the future
Americans have long obsessed over the statistical likelihood of electoral results, with platforms like Nate Silver’s FiveThirtyEight and the infamous New York Times poll needle going viral before every presidential election.
But predictions markets like Kalshi and Polymarket—which allow users to bet on outcomes against specified odds, similar to sports gambling—have become increasingly popular, with some analysts arguing that the ‘wisdom of the masses’ nature of broader markets, along with the added variable of money, creates more reliable odds. Silver even joined Polymarket as an advisor in July.
Regardless of whether platforms like Polymarket offer better predictions than polling averages, the wrinkle of gambling puts them in a regulatory gray zone. Under the Commodity Exchange Act, which established the CFTC’s supervisory guardrails, the agency is allowed to prohibit certain types of event contracts, such as ones involving war, gaming, or a “similar activity” that is “contrary to the public interest.”
After Kalshi tried in June 2023 to list contracts on which political party would control the House of Representatives and Senate, the CFTC blocked the new product, arguing that political gambling could violate state gambling laws and amount to “gaming.” Kalshi sued the CFTC that November. The CFTC later proposed a new rule that would prohibit electoral events contracts, with Chair Rostin Behnam arguing that such betting would put the agency “in the role of an election cop.”
Friday’s ruling, which comes less than a year after the lawsuit, effectively lifts the CFTC’s prohibition on Kalshi offering wagers on Congressional races. Kalshi responded by announcing it would make the contracts available this week, but the CFTC has sought an emergency stay of the decision before it decides whether to appeal the ruling.
“At a time when distrust in elections is at an all-time high, even a short listing of Plaintiff’s contracts…could harm public perception of election integrity and undermine confidence in elections,” CFTC lawyers wrote in a Friday motion.
Polymarket watches and waits
Despite Kalshi driving the momentous decision, the spotlight will be on Polymarket, which settles and pays out wagers using Ethereum-based smart contracts and has raised $70 million in venture funding. Polymarket stopped operating in the U.S. after reaching a $1.2 million settlement with the CFTC in 2022 for failing to register with the agency.
While Kalshi’s trading volumes are not public like Polymarket’s, they likely pale in comparison, with Bloomberg reporting that Kalshi did about $10 million a month in trading in April 2023, though Kalshi has since added the financial firm Susquehanna as a user.
As prediction markets, regulators, and electoral gamblers await the judge’s full decision, all eyes will be on Polymarket, which is based in New York but has not yet signaled whether it will open up its platform once again to U.S. users. The biggest question is whether the ruling on congressional bets can extend to contracts based on the presidential electoral outcome—and if Kalshi, and its competitors, can launch such products before the November election. Given the CFTC’s emergency motion, Cobb is likely to publish her full opinion in the coming days.
Despite its size, Polymarket will still have a disadvantage thanks to Kalshi’s established presence in the U.S. “Polymarket is not registered with the CFTC so we don’t think there will be an immediate impact there,” Cantrell Dumas, the director of derivatives policy at the progressive think tank Better Markets, told Fortune. “But we fear this ruling will open the door to other platforms seeking CFTC registration and approval to offer betting on U.S. elections.”
Polymarket declined to comment for this story, but a person familiar with the company said it was unlikely the court ruling would result in any sites offering bets in the U.S. on the presidential contest prior to the election. The person added that the ruling would make presidential election betting mainstream in the long term.
In our new special issue, a Wall Street legend gets a radical makeover, a tale of crypto iniquity, misbehaving poultry royalty, and more.
Read the stories.
