Why election prediction markets might not take off in the U.S.
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Illustration: Brendan Lynch/Axios
Prediction markets look set to be a core part of horse race coverage for the foreseeable future — but that doesn't mean they're going to become a popular pastime in which Americans gamble on electoral outcomes.
Why it matters: Even if they're legal, election markets will always be controversial, and at risk of being banned. They're also very unlikely to receive widespread attention outside presidential election campaigns.
- The profit potential is low since prediction markets are pretty low-margin businesses for the companies operating them.
- There are therefore few incentives for U.S. companies to spend a lot of time and money building such markets and selling them to politics junkies.
Between the lines: There are hundreds of futures markets in the U.S., most of them traded on exchanges like CME and Cboe. Participants tend to be both deep-pocketed and highly sophisticated. You'll never see regular individuals, such as Eddie Murphy's character Billy Ray Valentine in "Trading Places," who made a fortune trading orange juice futures on a New York trading floor.
- Election markets could be headed in a similar direction. The largest and most liquid market, the cryptocurrency-based Polymarket, is rapidly closing in on $1 billion in U.S. election bets — but on a typical day, it sees fewer than 10,000 actual traders.
- Last month was the busiest in Polymarket's history, with $473 million of bets placed by 64,000 traders. That's an average of more than $7,000 per trader — a sign of a market dominated by experienced bettors rather than everyday gamblers.
Reality check: While it makes intuitive sense that a legal market open to Americans would be bigger and more popular than a crypto market that isn't, that's unlikely to happen before the election — if ever.
- A successful product takes time to build, and needs to be launched with a major marketing campaign. Given the uncertainties around election markets, and the fact that most of the time they're largely dormant, neither is likely to happen in the next three years.
- Election markets, by comparison, are always going to be much smaller than sports betting or crypto markets, especially outside presidential election campaigns. They also feel morally dubious to many people who feel that betting on democratic outcomes violates their ethics.
Driving the news: While election markets have been declared legal in the U.S., an appeals court has prevented them from actually being offered for the time being.
- In the U.S., Interactive Brokers is preparing to join Kalshi, which won the court case, in offering election markets to the general public.
- Both of them have been approved by the CFTC as designated contract markets, or DCMs — something that's necessary before prediction markets can be listed.
What's next: Polymarket isn't a DCM, so there's little chance its product will be legal in the U.S. any time soon.
- By the same token, however, Polymarket, which operates only outside the U.S., isn't subject to American jurisdiction, and can therefore operate continuously while other markets, like Kalshi's, appear and disappear in response to judicial rulings.
The bottom line: Thanks to Polymarket, there is now already enough liquidity that prediction markets can play an important role in giving the public real-time visibility into the probability of certain electoral outcomes.
- A legal domestic market might eventually exceed Polymarket in size — but that's almost certainly not going to happen this cycle.
