Kalshi surged past Polymarket in trading volumes last week.
Both entities are regulated by CFTC (Commodities Futures Trading Commision)
It’s a weird world we live in today when you consider that what was being traded in such record volumes by both Kalshi and Polymarket was ‘Predictions’
Is that [Prediction] even an asset class?
The regulatory vacuum here does ring a bell, right?
Remember the early days of Bitcoin?
Regulators scrambled to answer a basic question:
Is it a commodity?
Or a security?
Or a currency?
And that confusion around the choice of ‘box’ created years of uncertainty.
We now appear to be at the same inflection point with Prediction Markets (on the definition of the asset class that is; this isn’t about weighing the pros and cons of ‘Crypto-assets’ against ‘Predictions’)
The CFTC oversees Kalshi and Polymarket.
But doesn’t the CFTC govern commodity futures – like contracts on say the price of wheat or oil?
A bet on ‘Will the Fed cut rates by 25 bps or 50 bps?’ is not a ‘futures’ on an ‘asset’; it’s a wager.
This is a fundamental mismatch.
There is another obvious elephant in the room here: Insider Information.
Futures is largely about inside knowledge (a farmer hedging his wheat crop against a price change is using specialized, insider-driven knowledge. The farmer will indeed potentially know more about the future path of the price of Wheat than you or I), so what really is then the point of boxing in ‘Predictions’ with ‘Futures’?
Surely, that is as ‘light-touch’ and as ‘definition-less’ as it can get when it comes to regulation.
This lack of definition creates a massive blind spot for insider trading. (Calling it an ‘Event Contract’ instead of a ‘Prediction’ does not give it better definition)
Laws preventing a government aide from trading stock on non-public information are clear.
But the laws preventing that same aide from betting on an event contract about a policy decision are untested and murky.
The ‘asset’ they are trading is simply not defined.
Sure, the CFTC is an expert at ensuring market integrity for commodities, but policing information asymmetry in geopolitics and policy is far outside its mandate.
It’s a fundamentally different challenge.
