Kalshi, a financial exchange established in 2018, allows users to trade on real-world event outcomes, from weather forecasts to pop culture. In November 2023, Kalshi filed a lawsuit against the U.S. Commodity Futures Trading Commission (CFTC). The suit challenges the regulator’s decision to block contracts related to political outcomes, particularly regarding which party will control Congress.
Kalshi argued that the CFTC’s actions were unfair and restricted its regulated operations. On September 6, 2024, U.S. District Court Judge Jia M. Cobb ruled in Kalshi’s favor, denying the CFTC’s cross-motion for summary judgment. This decision marked a critical turning point for the legal status of political prediction markets in the United States.
Kalshi CEO Tarek Mansour called the ruling a “historic milestone,” stating that election markets in the U.S. are now legal for the first time in 100 years. Despite the ruling, the CFTC responded by filing an emergency motion for a two-week stay, stating they needed more time to assess whether to appeal the decision.
Regulatory Challenges Continue
The CFTC expressed the need for Judge Cobb’s written opinion before making an informed decision on further actions. The judge granted a temporary stay, but it only lasted until the hearing’s conclusion. This brief delay could allow Kalshi to launch its election markets soon.
The CFTC, however, remains concerned about its ability to oversee the complexities of political markets. CFTC Chair Rostin Benham highlighted the agency’s limited capacity to monitor the dynamics surrounding elections, which involve countless participants.
The Future of U.S. Political Prediction Markets
Kalshi’s entry into the political prediction market signifies a shift toward more regulated betting platforms. Currently, PredictIt is the only company legally operating such markets under a narrow regulatory exemption. Other platforms, like Polymarket, operate outside U.S. jurisdiction and offer betting options through cryptocurrency contracts. For example, Polymarket reported $875 million in bets on the upcoming presidential election as of Wednesday.
Kalshi’s approach differs from PredictIt, as it aims to attract institutional investors by allowing large-scale positions up to $100 million. Advocates for regulated prediction markets argue that they provide valuable election insights by encouraging accurate predictions from financially invested participants.
However, the CFTC continues to voice concerns over election integrity and is considering a proposed rule to ban election contracts across all exchanges it supervises, adding another layer of complexity for platforms like Kalshi.
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