Kalshi Gains Momentum With New Political Betting Contracts

As digital assets continue to gain traction in the United States, their growing influence is becoming apparent in both politics and finance. From prediction markets offering bets on election outcomes to the increasing interest in cryptocurrency among voters in key swing states, the intersection of crypto and US elections is shaping up to be a significant factor in 2024. While digital assets may not be the main issue driving the election, their relevance in swing states and the ongoing discussions around crypto-friendly policies suggest that they are playing an increasingly important role in public discourse.

Kalshi’s US Election Prediction Market Gains Momentum Amid Court Victory and Growing Competition

Prediction marketplace Kalshi has been making headlines with its newly certified event contracts tied to US political outcomes. This milestone comes after Kalshi’s landmark court victory in September, which allowed the exchange to list these controversial contracts despite opposition from the Commodity Futures Trading Commission (CFTC). According to regulatory filings, Kalshi has certified over a dozen event contracts, ranging from the November US presidential election to Senate races, cabinet appointments, and even New York City Mayor Eric Adams’s potential resignation.

These event contracts, known as binary options, are winner-take-all financial derivatives that allow traders to bet on political outcomes. What makes Kalshi unique is that it is the first regulated exchange in the United States to offer such betting on election results. Since listing its flagship contract on Oct. 7, titled “Who will win the Presidential election?”, the platform has already garnered $14 million in betting volume, as noted on Kalshi’s official website.

Kalshi’s certification of election-based contracts represents a significant step forward for prediction markets in the United States. The marketplace, which operates as a US-regulated exchange, was embroiled in a legal battle with the CFTC in November 2023. The regulator attempted to block Kalshi from listing political event contracts, citing concerns that they might undermine the integrity of elections. However, Kalshi successfully sued the CFTC, with a court ruling in September that favored the exchange. This victory was further affirmed in October when a federal appeals court upheld the initial ruling.

Despite the CFTC’s concerns, industry experts argue that prediction markets like Kalshi can offer a more accurate reflection of public sentiment than traditional polling. Harry Crane, a statistics professor at Rutgers University, emphasized the importance of these markets in an August comment letter to the CFTC. He wrote, “Event contract markets are a valuable public good for which there is no evidence of significant manipulation or widespread use for any nefarious purposes that the Commission alleges.” This defense has resonated with market participants, as they see event contract markets as an innovative way to gauge public sentiment and forecast political outcomes.

Although Kalshi’s entry into political betting is groundbreaking, it faces stiff competition from decentralized prediction marketplaces. Polymarket, a permissionless venue operating on the Polygon blockchain, has emerged as the dominant player in this space. Since its inception in 2020, Polymarket has facilitated nearly $2 billion in bets tied to the US presidential race, vastly outpacing Kalshi in both volume and market penetration.

Polymarket’s rise to prominence came in 2024, driven by its decentralized nature, which allows users to place bets without the need for a centralized authority. While Kalshi operates within a regulated framework, Polymarket thrives on the flexibility of blockchain technology, offering users a more decentralized, and potentially less restricted, platform for betting on political events.

As of Oct. 16, Kalshi’s market data showed that Republican nominee Donald Trump holds a 55% chance of winning the presidential election, while Democratic rival Kamala Harris sits at 45%. Polymarket’s bettors, however, are even more bullish on Trump, giving him a 58% chance of victory compared to Harris’s 41%. Polymarket’s platform also accommodates bets on low-probability outcomes, including the possibility of a third-party candidate clinching the presidency.

The Public and Institutional Interest in Prediction Markets

In a sign of the growing acceptance of prediction markets, Bloomberg LP, a leading financial data and news provider, added Polymarket’s election odds data to its Bloomberg Terminal in August 2024. This integration allows institutional investors and traders to access real-time political betting odds alongside other financial data, further legitimizing prediction markets as a valuable tool for gauging political sentiment. Bloomberg Terminal, which commands roughly one-third of the global market for financial data services, provides an influential platform for this type of information, helping bridge the gap between finance and politics.

Kalshi’s regulatory victory and entry into the US election prediction market signal a turning point for binary options and event contracts in the political sphere. While Polymarket remains the larger player, Kalshi’s regulated nature may attract more cautious investors and traders who seek the security of a regulated exchange. However, the decentralized advantages of platforms like Polymarket continue to appeal to those who prefer fewer regulatory constraints and the broader market scope that blockchain technology offers.

As the 2024 US presidential election approaches, both Kalshi and Polymarket are poised to play significant roles in capturing public sentiment and facilitating political speculation. Kalshi’s ability to list political event contracts, backed by its court victories, sets a precedent for future regulatory battles in the prediction market space. Meanwhile, Polymarket’s dominance in volume and its decentralized structure suggest that it will remain a major player, especially as decentralized finance (DeFi) platforms continue to gain popularity.

Cryptocurrency’s Growing Role in US Swing States as Presidential Elections Loom

While digital assets may not top the list of issues in the upcoming United States presidential elections, their increasing relevance among voters, particularly in key swing states, could prove significant in determining election outcomes. As cryptocurrencies gain popularity across the country, states that could tip the balance in the 2024 presidential race are seeing a surge in crypto-related interest, according to the latest data from Andreessen Horowitz’s (a16z) “State of Crypto 2024” report.

Swing states—those politically unpredictable regions that often decide US presidential elections—are experiencing a notable rise in public interest in cryptocurrencies. According to Google Trends data compiled in a16z’s report, Pennsylvania and Wisconsin, both of which are expected to host fiercely contested races in 2024, have recorded the fourth- and fifth-largest increases in cryptocurrency search interest since the 2020 elections. This trend is noteworthy given the role these states play in determining the final electoral college tally.

Other crucial battleground states like Michigan and Georgia have also seen a sharp increase in cryptocurrency-related queries. However, states like Arizona and Nevada, which were pivotal in the 2020 elections, have experienced a slight decline in crypto interest, according to the same report.

These states, which can swing either way between Democratic or Republican candidates, are often seen as bellwethers in presidential elections. Therefore, understanding voter sentiment and key issues like cryptocurrency adoption in these regions could offer insights into which way the electorate will lean in November 2024.

According to the a16z report, over 40 million Americans now hold cryptocurrencies, with many expressing strong support for candidates who favor crypto-friendly policies. This burgeoning voter bloc is especially prominent among younger voters, with 25% of Americans between the ages of 18 and 34 owning cryptocurrencies. This demographic is seen as increasingly influential, particularly in swing states where the margins are often razor-thin.

Among swing state voters, 41% identify as Democrats, 39% as Republicans, and 20% as Independents or other. This diverse political makeup suggests that cryptocurrency policy could be an important factor in swaying undecided voters or energizing younger and more tech-savvy segments of the electorate. The listing of Bitcoin and Ethereum exchange-traded products (ETPs) on major US exchanges has further broadened investor access to cryptocurrencies, potentially boosting interest and participation in the market.

As a result, many political observers believe that cryptocurrency regulation and policies could play a larger role in influencing voters’ decisions than in previous election cycles. The a16z report speculates that the number of Americans holding cryptocurrencies could grow even further as digital assets become more accessible to retail investors through these financial products. Currently, Bitcoin and Ethereum funds listed on traditional US exchanges hold a combined $65 billion in on-chain assets.

The Digital Dollar Era and Central Bank Digital Currency Debate

One of the most pressing topics on voters’ minds regarding cryptocurrencies is the prospect of a central bank digital currency (CBDC) in the United States. While countries like China, India, Canada, and several others have made significant strides in CBDC development, the idea of a digital US dollar has faced stiff opposition from lawmakers and presidential candidates alike.

The Federal Reserve has been researching the feasibility of a digital dollar since 2020. However, the project has sparked controversy, with some political figures fearing that a government-issued digital currency could infringe on individual privacy or centralize too much power within the federal government. As the debate continues, private stablecoins—cryptocurrencies pegged to the value of fiat currencies—have emerged as an alternative, filling the void left by the absence of a CBDC.

Stablecoins have proven to be particularly useful in maintaining the US dollar’s role as the global reserve currency. According to the a16z report, stablecoins accounted for more than 99% of stablecoin currency shares in 2024, and issuers of these digital assets are now among the top 20 holders of US debt, holding approximately $92 billion in US Treasuries.

Stablecoins have also proven to be a powerful tool for transferring value across borders. During the second quarter of 2024, stablecoin transactions reached $8.5 trillion across 1.1 billion transactions, more than double the $3.9 trillion in transactions processed by Visa during the same period. This incredible growth highlights the increasing adoption of stablecoins as a secure, efficient, and scalable way to transfer value globally.

The surge in cryptocurrency interest in swing states could make digital assets a key topic in the 2024 elections, especially among younger voters and those concerned with economic innovation. Political campaigns will need to take notice of the growing demand for clear and forward-looking cryptocurrency policies. Many voters in these key states are likely to evaluate candidates based on their positions on crypto regulation, stablecoin policy, and the potential development of a US digital dollar.

Furthermore, as cryptocurrency ownership becomes more widespread, its potential to sway election outcomes in battleground states grows. Candidates who can tap into this voter base and articulate a vision for the future of digital assets may find themselves with an edge in close races. Conversely, candidates who fail to engage with the crypto community risk alienating a significant portion of the electorate, particularly among younger voters who view digital assets as an essential part of the future economy.