Wall Street regulators have spent more than two years trying to clamp down on the nascent political gambling scene in the U.S. But the chaos that has reconfigured the presidential race — from the assassination attempt on former President Donald Trump to Vice President Kamala Harris’ rise to the top of the Democratic ticket — is setting off a historic wave of political trading before November. (Traders currently have Trump and Harris roughly tied.) PredictIt, a decade-old political prediction market, saw its busiest July ever with trading volumes reaching nearly 120 million contracts — a 510 percent spike from the previous month. Traders have also piled up wagers on Polymarket, a cryptocurrency-based offshore betting market that has now recorded $1 billion in total volumes. And the trading frenzy only stands to grow as Election Day nears, according to traders and industry executives, who see the activity as further proof of the appetite for political betting. “The turbulence of the last month has been a real demonstration about how good prediction markets are,” said Jason Furman, a longtime follower of the markets who led the Council of Economic Advisers during the Obama administration. “If I was away from the news for six straight hours, I would check the prediction markets before the news.” The blitz of wagers is adding fuel to the already raging fight over the political betting complex’s future in the U.S., as the Commodity Futures Trading Commission weighs a proposed rule that would expressly outlaw the markets. Executives, traders and industry proponents are latching onto the rush as evidence that the CFTC needs to set up guardrails for political betting markets, not ban them. They argue that investors can use the markets to hedge the risks of a new administration adopting either harsher or more lenient policies toward certain industries. And the trading data, they say, can be critical to deciphering the electoral landscape. CFTC Commissioner Summer Mersinger, a Republican who voted against the proposal, told MM the trading activity makes it more difficult to push ahead with a blanket prohibition. “It’s not our job necessarily to shut things down that we don’t like,” Mersinger said. “We already know that if we push this demand out of the U.S., it goes overseas. But that has never stopped anyone from being able to access these markets.” The CFTC has long resisted political betting through derivatives products, stating that they already violate its rules as well as state law. But officials’ concerns cut deeper, too. CFTC Chair Rostin Behnam has warned that the products threaten to “commoditize and degrade” the integrity of U.S. elections, a fear shared by many Democrats on Capitol Hil l, including Sens. Jeff Merkley and Amy Klobuchar. The U.K. was recently rocked by its own election gambling scandal, as our international colleagues have reported. “The last thing the American people need is somebody playing with democracy,” Better Markets CEO Dennis Kelleher said. U.S. traders have been able to wager on political contests for years thanks to a mix of regulatory exemptions and offshore markets. PredictIt was launched in 2014 with the CFTC’s blessing to operate as an academic venture primarily built for research purposes. (The CFTC moved to shut PredictIt down two years ago for allegedly not following the agency’s guidelines, a fight now in the courts.) Polymarket purports to not offer its services to Americans, though several U.S.-based traders told MM they regularly use the platform by masking their locations online. In 2022, Polymarket settled charges from the CFTC alleging it was illegally operating in the U.S. The company did not respond to multiple requests for comment. However the CFTC proceeds, traders are not letting the regulatory limbo get to them in what has suddenly become a volatile race for the White House. One political trader who is based in the U.S. and was granted anonymity because they use Polymarket told MM they loaded up on contracts for Harris to become the Democratic nominee — and ultimately president — after the June debate between President Joe Biden and Trump. Harris’s odds of winning were being priced at 57 cents on PredictIt and 48.9 cents on Polymarket, as of Thursday evening. Each contract pays out $1, if accurate. The trader’s Polymarket account is already up about $23,000 over the last month, they said. Others are in the black by millions. “The horse has left the barn,” said Joe Grundfest, a former commissioner at the Securities and Exchange Commission who has written in support of the markets. “They’re here, they can’t be stopped and [the CFTC] might as well do them as responsibly and safely as possible.” IT’S FRIDAY — Are you betting on November? Are you Polymarket CEO Shayne Coplan? If so, let’s talk: dharty@politico.com. And as always, email Sam at ssutton@politico.com.
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