SEC Isn’t Ready to Bet on Prediction Market ETFs Just Yet

Question: Oh, Magic 8 Ball, will the Securities and Exchange Commission approve prediction-market ETFs? Answer: Ask again later.

Last week, the SEC instructed staff to seek public input on exchange-traded funds tied to election results and economic data outcomes. Prediction markets remain largely uncharted territory for both exchange-traded funds and traditional finance overall. Bringing one of investing’s most trusted wrappers into what many still view as pseudo-gambling is a major decision, and regulators appear determined to move carefully. “If these make it to market, it will set a precedent that’s hard to undo,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “You’d be letting the genie out of the bottle, and because of how endless the possibilities are, the SEC is really trying to make sure they get it right,” he said, adding the funds will likely eventually launch, potentially later this summer.

Most advisors probably have little interest in using prediction markets directly, but ETFs tied to them could still attract significant investor demand. The appeal is familiar: ETFs are liquid, inexpensive, easy to access and already widely trusted by retail investors. “If you’re used to using Charles Schwab, Fidelity or Vanguard, you probably don’t want to open a Polymarket account,” Balchunas told Advisor Upside. “People want everything inside their brokerage account.”

The Betting Type

The 24 delayed ETF filings come from asset managers including Roundhill Investments, GraniteShares and Bitwise Asset Management. Most would track election outcomes, which Balchunas believes would likely attract the bulk of investor assets. “The industry will make some wild ones, but most of the money will probably go toward funds focused on presidential elections and Federal Reserve rate movements,” he said.

On the surface, prediction markets often resemble sports betting because users buy and sell contracts tied to specific outcomes. Platforms such as Kalshi and Polymarket allow people to wager on almost anything, including:

• Whether the US will enter a recession during a certain time frame. 
• Whether oil will reach $115 a barrel.
• Even whether The Mandalorian & Grogu will land a strong Rotten Tomatoes score.

Still, supporters argue prediction markets are more than speculation. “I find myself relying on them more and more as an indicator of what the markets are really thinking,” Ben Snider, chief equity strategist at Goldman Sachs, said at a recent event. “I have AI combine Kalshi, Polymarket, anything else I can find, and aggregate them across my screen.”

Recalculating. Historically, Wall Street created financial products first and later packaged them for retail investors. Prediction markets, much like crypto before them, are reversing that process, emerging from decentralized internet communities before being absorbed into traditional finance. “It’s an unusual direction,” Balchunas said. “But if something works, Wall Street will eventually capitalize on it.”