U.S. Election Betting: What’s at Stake in Final (?) CFTC-Kalshi Showdown

10:30 a.m. Eastern Time (equivalent to 14:30 UTC) is when Judge Jia M. Cobb from the U.S. District Court for the District of Columbia will listen to appeals regarding an emergency request made by the U.S. Commodity Futures Trading Commission.

Last week, the Commodity Futures Trading Commission (CFTC) suffered a court loss in a lawsuit brought forth by Kalshi, a forecasting platform. Kalshi had accused the regulatory body of preventing it from offering contracts predicting which party would control each chamber of Congress following the election.

In their urgent request, the Commodity Futures Trading Commission (CFTC) requested Cobb to delay Kalshi’s market listings for at least another two weeks. At the time of this request, the judge had not yet released an opinion detailing her reasoning behind ruling in favor of Kalshi. The regulator stated that they needed this opinion to decide if they should appeal, as they cannot make an informed decision without it. (The opinion was published Thursday, just prior to the publication of this article.)

Cobb temporarily halted proceedings, with this pause extending until the completion of Thursday’s court case. Based on the outcome of the hearing, Kalshi may be given permission to initiate its election markets as early as Friday. However, if the judge deems it necessary, the company might have to hold off on launching until after she delivers her verdict and a few days pass.

If the CFTC chooses to challenge the decision, it’s possible that either the initial judge or an appeals court could temporarily halt proceedings while they consider the appeal. This delay might extend up to a year, which means Kalshi would miss out on capitalizing on the political betting excitement surrounding the 2024 election during the final two months before the vote. (It’s important to note that an appeal doesn’t guarantee a stay will be issued.)

The events unfolding are taking place while the Commodity Futures Trading Commission (CFTC) evaluates a suggested regulation that would ban election-related contracts across all the exchanges under its supervision.

1st Option: “Professor Koleman Strumpf from Wake Forest University, North Carolina, who has delved into the long-standing prediction market history during US elections, proposed option one as ‘regulated political prediction markets.’ Alternatively, he described option two as a peculiar state of uncertainty or limbo.

Supporters of prediction markets claim that these platforms provide advantages for the wider population, as they uncover the genuine opinions of experts who have a personal stake in the outcome, rather than relying on speculations from timid commentators.

In the words of Will Ogden Moore, from Grayscale Investments, participants are motivated financially to deliver precise forecasts, irrespective of their personal inclinations. This is because accurate predictions yield profits, whereas inaccurate predictions lead to financial losses.

‘Huge demand’

Kalshi offers markets based on various types of event outcomes, including Taylor Swift’s album sales and Hurricane Francine’s wind speed, yet there are currently no markets for election results.

Currently, PredictIt stands as the sole entity authorized by law to run political forecasting platforms within the United States. This company functions under a specific regulatory exception. Last year, even PredictIt found itself in a legal dispute with the Commodity Futures Trading Commission (CFTC) when the regulator attempted to close it down.

But the dearth of regulated venues in the U.S. has not constrained political betting.

This year’s cryptocurrency boom has primarily profited Polymarket, a platform prohibited in the U.S. due to a CFTC agreement. As of Wednesday afternoon, $875 million worth of bets on the presidential election have been placed in a smart contract with this platform, using USDC (a stablecoin tied to the dollar) rather than traditional dollars for settlement.

Strumpf stated, “Political prediction markets are an essential part of our future, in my opinion. The supply will adapt to the high demand that exists for these services.

Unlike platforms like PredictIt and Polymarket that limit individual bets to $850 per contract, restrict a maximum of 5,000 traders per contract, or demand a basic understanding of cryptocurrency (and an IP address outside the U.S.), Kalshi is catering to high-profile investors from Wall Street. Its congressional control contract allows for positions up to $100 million.

According to Strumpf, it is beneficial for the general public to establish regulated prediction markets, as these transparent, regulated platforms address any valid concerns raised by the Commodity Futures Trading Commission (CFTC), and operate under clear oversight.

One of those concerns is the potential impact on election integrity – and the CFTC’s mandate. While the agency regulates futures markets, it also has jurisdiction to police fraud in the spot, or cash, markets for the underlying commodities. The agency has experience investigating things like fraudulent cattle sales, but says it is unprepared to become an “election cop.”

In his denial of Kalshi’s application last year, CFTC Chair Rostin Behnam stated that our newly established oversight would inherently involve scrutinizing elections, political candidates, and a multitude of players involved in the complex political processes that are widespread in traditional media and digital platforms.

For those who want to tune into Thursday’s court proceeding, simply call this number: +1-877-411-9748. Once connected, enter the access code: 6640172.

UPDATE (Sept. 12, 12:03 UTC): Adds note that judge’s opinion came out just before publication.