Kalshi Bets Election Fever Will Drive Platform Growth

Fundamental to the idea of democracy is a belief in the wisdom of crowds. Kalshi believes the same principle applies to predicting electoral outcomes.

On Wednesday, the prediction market launched a central hub for contracts linked to this November’s midterm elections in the US. It’s a bet, or, scratch that, a prediction that political junkies will have the same fervor as sports fans, and that the political media may turn to the platform as a supplement to traditional polling to track the many parallel horse races.

Predictions of the People, by the People

To say that Kalshi is riding a hot hand is an understatement. The World Cup drew 3 million new users, the company told CNBC, and $1.2 billion was traded on contracts predicting the winner, setting a record for a single market. Estimates from analytics firm Ticker Tracker, made using publicly available data, say the company processed $40 billion in sports bets overall during the World Cup. The election hub, meanwhile, marks the latest attempt to cement Kalshi’s appeal outside of sports, even as some regulators try to impose limits on the unruly market:

• In May, the US Commodity Futures Trading Commission permitted the company to list perpetual futures contracts, which have no expiration date; the contracts were first tied to cryptocurrencies, and Kalshi is now seeking approval for contracts tied to precious metals. Kalshi this month also began allowing users to bet on the outcome of FDA trials.
• On the other hand, the CFTC last month proposed rules to prohibit trades on war, terrorism, assassination and illegal activity, as well as some easy-to-manipulate sports contracts (such as missed games and “unders”). Meanwhile, the state of Washington on Tuesday successfully blocked the platform from offering event contracts there after arguing that they amounted to an illegal sportsbook; Massachusetts, Michigan and Nevada have similarly won injunctions.

Mass Effect: Still, the trading may be somewhat beside the point for the election hub. Kalshi says 75% of platform visitors come simply to look at current odds, not to actually buy contracts. How much wisdom betting crowds possess is another question. One working paper from researchers at Yale University and London Business School argues that the accuracy of prediction market odds usually comes down to a small handful of skilled traders, roughly 3% of platform users, who push contract odds in the correct direction of the final outcome, while “the remaining majority does not produce accuracy; rather, it funds it.”