Judges in the Washington DC Court of Appeals ordered Wednesday that users of online prediction market Kalshi can bet on the 2024 election, denying a request for a stay on such bets from the Commodities and Futures Exchange (CFTC). The directive means that Kalshi can directly compete with Polymarket, the decentralized, off-shore betting platform whose trading volume has surged over 7,000% this year through the end of August, owing largely to its popular election betting products. 

The CFTC “has failed at this time to demonstrate that it or the public will be irreparably injured absent a stay, we deny its motion without prejudice to renewal should more concrete evidence of irreparable harm develop during the pendency of this appeal,” wrote judges Patricia Millet, Florence Pan, and Cornelia Pillard in the order. 

At a hearing in September, Kalshi’s counsel said that allowing it to host election-related bets would “[boost] civic engagement in our democracy to give people the ability to participate in these markets.”

Following the hearing, a DC judge ruled that Kalshi should be able to host election bets after an 11-month lawsuit between the prediction market and the CFTC. However, just eight hours after Kalshi launched online election betting in response to the ruling, the CFTC appealed the judgment, pushing the lawsuit to an appeals court with the authority to pause election bets during the appeal. That court put in place an emergency stay on election bets, prohibiting Kalshi from hosting such bets pending the order published this morning. 

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Products that allow users to bet on elections are a huge profit-making opportunity, with such bets comprising nearly 80% of trading volume on Polymarket in August, for example. PredictIt, a rival predictions market that also hosts election bets, is not permitted to disclose the amount of money traded on its site as part of an agreement with the CFTC, but saw a surge of nearly 60,000 new users between the 2016 and 2018 midterm election cycles, according to Political Predictions Markets. 

Kalshi has invested a significant amount of money to sway the government in its favor, spending $200,000 in 2021 and 2022 on Washington lobbying, and said in filings that it would spend $1.5 million on national advertising if allowed to host election prediction markets. 

The appeals court held a hearing on September 19 in which counsel for the CFTC and Kalshi debated whether Kalshi should be prohibited from hosting election bets throughout the duration of the appeals process, which could take several months. Kalshi’s counsel said then that approximately $50,000 was wagered in the short period that election betting products were available.

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With the courts permitting Kalshi to host election bets, American users hesitant to use a VPN or set up a crypto wallet to access offshore sites such as Polymarket have an opportunity to wager on who will win the U.S. Presidency, House, and Senate on November 5, as well as other major elections during the course of the appeal. However, that does not mean that Kalshi will permanently be able to host election bets, as the court could decide that the CFTC has a right to block such products at the conclusion of the appeal in 2025.

Each Side’s Arguments 

In September 2023, the CFTC, which regulates designated contract markets like Kalshi, blocked a product that allowed users to bet on which party would control Congress, leading Kalshi to sue the regulator. In its argument this September for a stay, the CFTC argued that such election betting products could contribute to the spread of disinformation and manipulate the financial incentives of the products themselves. 

For example, the CFTC cited a “fake poll” on PredictIt showing musician Kid Rock leading Senator Debbie Stabenow in a Michigan Senate race 30% to 26%, despite the fact that Kid Rock (whose legal name is Robert Ritchie) himself admitted that his Senate campaign was just a publicity stunt. The agency also referenced documented cases of market manipulation on Polymarket, including one in which a trader bet “millions on Mitt Romney, likely to make the [2012] U.S. Presidential election seem closer than it was.” 

The CFTC also argued that blocking election bets on Kalshi would not cause irreparable financial harm to Kalshi, because the prediction market would still be able to host products on countless future elections if it wins its case in the court of appeals. “If [Kalshi] prevails on appeal, it can list election contracts into the foreseeable future and make up its losses,” the Commission wrote.

Kalshi rejected these arguments in its filings ahead of the September 2024 hearing, arguing that financial harm to it would indeed be irreparable because there would be no way for it to host the surfeit of bets on the November 5 election after the election itself takes place. Kalshi also argued that blocking election bets would actually harm public interest, because these products are used by the media, academics, and the public to ascertain public sentiment, and that these groups are already doing so in a more suspect way by referencing data from Polymarket, which is unregulated. 

“CFTC’s assertions that these contracts will somehow harm democracy are unsubstantiated and baseless — particularly given that hundreds of millions of dollars are currently trading on (unregulated) election prediction markets right now,” Kalshi said in a filing. In a separate filing, Kalshi added that “as academics, investors, former CFTC officials, human-rights activists, businesses, and nonprofits have all explained, these contracts carry great economic and informational value.”

The CFTC’s response to the argument that, by blocking election bets, the court would implicitly allow unregulated protocol Polymarket to take market share was particularly pointed. “A pharmacy does not get to dispense cocaine just because it is sold on the black market,” the CFTC argued. Similarly, it said that Kalshi should not be allowed to host election bets simply because another firm is doing so in an unregulated fashion.

UPDATE (Oct. 2, 12:17 p.m. ET): Updated with background on Kalshi and the CFTC’s arguments.