The inaugural election for prediction markets.

 "Election markets are on the horizon!" This announcement appeared prominently on Kalshi's homepage this Monday, accompanied by the news that "Election markets are now legal for the first time in 100 years."

Why it matters: This development could allow the general public to profit from election outcomes—raising concerns about the integrity of U.S. elections as viewed by the government.

Current landscape: Polymarket, a cryptocurrency-based betting platform that prohibits U.S. users, has already seen hundreds of millions of dollars wagered on U.S. political events this year. A legally sanctioned market could potentially expand significantly.

Concerns raised: The Commodities Futures Trading Commission (CFTC) has warned that election markets, where users can bet on election outcomes, "could potentially be used in ways that would adversely affect election integrity." They cautioned that even a brief listing of election contracts could "undermine confidence in elections."

Personal perspective: Growing up in the U.K., where betting on elections has always been legal, I never saw evidence that such betting harmed election integrity.

Current status: Kalshi, a startup facilitating cash bets on real-world events, recently triumphed over the CFTC in U.S. district court. The agency had prohibited Kalshi from offering a market on which party would control Congress in 2025, leading the startup to challenge the CFTC's authority. The judge has yet to release her ruling, and an emergency stay has been granted while a hearing is set for Thursday morning.

Wider implications: If the legal landscape becomes clearer, other companies may seek to enter the election betting space. Sports betting is now legal in 38 states, and those who bet on sports might also want to wager on political outcomes.

Competition: Kalshi faces competition from non-sports betting platforms like PredictIt and Polymarket, both of which have encountered issues with the CFTC.

Follow the money: Polymarket has emerged as a leader in this election cycle, with $1.1 billion wagered since June, 88% of which involves U.S. political bets. However, Polymarket's blockchain-based platform requires users to navigate cryptocurrency, complicating access, especially for American users who need to find workarounds to avoid legal issues.

Conclusion: If there's an estimated $800 million demand for election betting despite the challenges posed by cryptocurrency transactions, the potential market could be significantly larger if election markets are legalized.