Who killed the prediction market?
If you’re an American looking to make some money betting on future elections, I have some bad news.
The Commodities Futures Trading Commission, the federal agency tasked with regulating financial products like derivatives, has voted 3-2 for a proposal to ban “event contracts” on elections, but also on sports and on events like the Oscars. The rule targets prediction markets, sites like PredictIt or Kalshi that let you place real money on events happening in the future. It probably won’t be in effect until after November, but if you want to bet on the 2026 midterms, you may be out of luck.
The case for prediction markets is simple: They give observers valuable information about the future. The information may seem low stakes in the case of the Oscars or sports, but obviously who controls the presidency is of public interest, and with polling getting harder and harder, we need all the help we can get in forecasting and understanding election results.
I find these arguments pretty persuasive, and the arguments raised against legally allowing prediction markets frankly silly. Sports betting is now legal in 38 states and DC. It seems incredibly perverse that bets on the Knicks and Pacers would be legal but bets on Senate races that provide actually useful information to citizens the same way polls do would be banned.
At the same time, I’m skeptical that a bad legal regime is really what’s holding prediction markets back. Nick Whitaker and J. Zachary Mazlish have a smart essay in Works in Progress outlining a theory I find persuasive: prediction markets aren’t working because they don’t provide enough value to the kind of people you need to make a market work.
While the proposed CFTC ban is very broad, prediction markets on subjects other than elections are usually legal. At Kalshi right now, you can bet on what the Rotten Tomatoes score will be for Francis Ford Coppola’s comeback movie Megapolis (bets are currently hovering around 50), whether the Fed will cut interest rates before the end of July, and how thin Arctic Sea Ice will be next summer.
But these markets have not exactly taken the world by storm. Only 14 markets on Kalshi have $100,000 or more bet on them. That may seem like a lot, but compared to the stock market or sports betting it’s a pittance. What’s more, the top four markets are all about Fed interest rates, which, as Whitaker and Mazlish note, you can already bet on through the much larger futures market. The novel opportunities prediction markets offer, like betting on Megapolis’s Rotten Tomatoes score, are less utilized.
