“They Have a Lot of Money”

Unlike sportsbooks and casinos, which are considered gambling and regulated state by state, Kalshi is a financial exchange — which means it’s under the purview of federal regulators. Its marketplace offers “event contracts,” which are futures contracts that allow traders to wager on real-world events. Until this October, bettors on Kalshi could trade on non-election-related event contracts: for instance, the weather in Chicago, Federal Reserve rate cuts, or Oscar winners.

Kalshi executives — well aware that gambling on a presidential election would be more popular than gambling on cloud cover in the Midwest — have for the last year been trying to offer political betting to its users. But it has run up against the Commodity Futures Trading Commission (CFTC), the federal regulator that oversees derivatives markets, including prediction markets like Kalshi’s.

Last year, Kalshi proposed a contract that would allow traders to bet on whether Democrats or Republicans would win control of the House and Senate. The CFTC blocked Kalshi from offering these trades, arguing that election-related event contracts violate federal law that bans certain kinds of commodities markets, and are “contrary to the public interest,” citing concerns about election manipulation.

Kalshi took the commission to court, filing a lawsuit in November 2023. Then, this October, the US Court of Appeals for the DC Circuit reversed the CFTC’s decision, giving Kalshi the green light to start offering bets on all US elections. Steve Suppan, a policy analyst at the Institute for Agriculture and Trade Policy, an advocacy and research organization, called the ruling “grim news for democracy,” saying that it was likely that the decision would stand.

Kalshi’s success hinged, in part, on the right-wing infiltration of the federal judiciary. In her opinion dismissing the CFTC’s concerns about the impacts of political betting, the appellate judge cited the Supreme Court’s June Loper Bright decision. The Loper Bright case did away with a landmark legal doctrine that empowered regulators to enforce consumer protections, environmental laws, and other regulations — thanks to years of corporate opposition.

Kalshi was ready for its legal victory. Within days, the company was offering users the ability to bet on the presidential race and had launched a national advertising blitz. By Election Day, users had collectively wagered more than $100 million on just the presidential contest.

Kalshi’s rise paralleled that of Polymarket, another political gambling platform. Polymarket, unlike Kalshi, is not regulated in the United States, and is technically barred from allowing bets from US users, although the company, which is headquartered in Manhattan, actively recruits US traders. Bets on Polymarket are made with cryptocurrency, which makes transactions pseudonymous and decentralized, helping keep the site out of regulators’ reach.

This election season, for the first time, prediction markets featured heavily in mainstream election horse race coverage. Networks from CNN to Fox News highlighted prediction markets as a reliable way to forecast elections, despite the fact that there was at least one attempt at market manipulation. Nate Silver, the political polling guru, joined Polymarket’s board in July, lending the company additional credibility with corporate media.

As the markets have grown, they have begun leveraging their influence in Washington, DC. Kalshi has reported spending $500,000 lobbying lawmakers in Washington so far this year, mostly on the CFTC’s regulatory initiatives and its oversight of prediction markets, according to its disclosures.

“They have a lot of money. They’re powerful,” said Cantrell Dumas, the director of derivatives policy for Better Markets and a former attorney at the CFTC. “Just look at who’s behind them.”

In early funding rounds, Kalshi raised millions from Wall Street and venture capital, with backers that included the billionaire investors Charles Schwab and Henry Kravis. After the October court victory, investors poured additional tens of millions into the company as Kalshi scrambled to scale up to meet demand.

“Market Integrity Would Crater”

With a second Trump administration now certain to take power, just as the prediction markets forecast, platforms like Kalshi may see a far more favorable attitude from federal regulators. The shift could allow trades like the $30 million Trump bets even on regulated markets like Kalshi. Experts warn this could lead to out-of-control speculation, with consequences for democracy, affecting potentially both the markets’ forecasts and elections.

Suppan, the analyst with the Institute for Agriculture and Trade Policy, suggested that Kalshi and Polymarket had another motive for their postelection victory laps: “The hope that they will receive favorable regulatory treatment — tax cuts, government contracts, subsidies, the usual boodle.”

While Democratic nominee and Vice President Kamala Harris was also friendly to financial interests in her campaign messaging, there’s reason to believe prediction markets will receive better treatment under Trump.

During the first Trump administration, the CFTC, now the main regulator overseeing prediction markets, was chaired by former financial executive Christopher Giancarlo, a Trump appointee. Giancarlo, who’s since embraced the moniker “Crypto Dad,” was friendly to cryptocurrency and fintechs during his tenure at the agency — and in 2022, after departing his government job for corporate law, joined Polymarket’s board.

Giancarlo is one of several former Trump CFTC officials who are now working with prediction markets. Others include Brian Quintenz, a former CFTC commissioner Trump appointed in 2017, who joined Kalshi’s board in 2021; and Jeff Bandman, who was a close adviser to Giancarlo at the CFTC under Trump and who is now advising Kalshi.

Giancarlo’s name is being floated as a potential US Securities and Exchange Commission (SEC) chair under Trump, a sign of the kind of crypto-friendly leadership that is likely to helm agencies like the CFTC, many of whom have close ties to prediction markets or are vocal supporters. Another potential pick is reportedly Daniel Gallagher, a former SEC commissioner who now works at Robinhood, a crypto and trading company that recently launched its own prediction market.

The current head of the SEC, Gary Gensler, has voiced skepticism about crypto and has repeatedly attempted to rein in the market, drawing ire from crypto companies for his aggressive enforcement of the industry. Such an approach is unlikely to continue under Trump.

And if Project 2025 is any indication, a GOP trifecta of power, now certain as the final House races are called, could reshape the government’s oversight of prediction markets, making election betting more mainstream and leaving it even more unaccountable.

The chapter on the CFTC and other financial regulators in Project 2025, which was created by the conservative, corporate-backed think tank the Heritage Foundation, was written by David Burton, a Heritage Foundation economist and former corporate lobbyist.

In it, Burton proposes doing away with the CFTC’s “position limits” rule, a reform that originated with the Dodd-Frank Wall Street Reform and Consumer Protection Act, the package of financial reforms passed after the 2008 global financial crisis. The rule was designed to prevent excessive speculation in commodities markets by limiting the number of shares that a given trader can hold in certain markets. The limit was already watered down by the first Trump administration, said Suppan — and the rule may now be on the chopping block

“Without a position limit rule, the $30 million bet on Polymarket could become routine in presidential elections,” said Suppan — as political bettors could wager as much money as they wanted, even on regulated markets like Kalshi.

Project 2025 instead proposes to allow individual exchanges to set their own position limits — in which case, Suppan warned, “market integrity would crater.” Under this proposal, he said, “Kalshi could set any election betting contract as high as it wished,” without justifying it to regulators.

Other proposals would erode the agency’s independence, allowing the politically appointed CFTC chair to unilaterally remove the agency’s executive director — which Suppan called “a very bad idea for any independent agency of the federal government.”

But even without the GOP’s proposals, the agency may already be unprepared to oversee the nascent political betting industry, experts warn.

“It’s underfunded and understaffed,” said Dumas, the former CFTC attorney with Better Markets. “It has no expertise to mandate, legalize, or police gambling on elections across the US.”

Some members of Congress have been trying to intervene. In September, Sen. Jeff Merkley (D-OR) introduced the “Ban Gambling on Elections Act,” a bill that would prohibit trading on elections and political contests.

“Reducing our democracy to a horse race for the wealthy to bet on cheapens and weakens our democratic process,” Merkley said. The bill remains in committee.