The Rise of Prediction Markets: What Happens When Voters Bet on Elections?

People are betting on elections in prediction markets, and Congress is scrutinizing the practice as a potential insider trading risk.

According to a June 16 report from World & Nation, platforms like Kalshi and Polymarket allow users to wager on political outcomes, including the Los Angeles mayoral race. The practice has drawn concern from lawmakers, who are examining whether such markets could enable illegal trading on election-related information.

Prediction markets let users bet on elections—but is it legal?

Prediction markets operate as decentralized betting platforms where participants trade contracts tied to real-world events, such as election results. Kalshi, founded in 2020, and Polymarket, launched in 2018, have gained traction among traders betting on political races, policy decisions, and even geopolitical events like wars.

The Los Angeles mayoral race has become a test case. On Kalshi, users can place bets on whether a candidate will win, with prices fluctuating based on perceived probabilities. For example, as of early June, contracts tied to potential mayoral candidates were trading at varying premiums, reflecting market sentiment.

Why Congress is watching—and what the risks are

Lawmakers are increasingly focused on whether prediction markets could facilitate insider trading or market manipulation. A June 15 hearing in the U.S. House Financial Services Committee highlighted concerns that traders with access to nonpublic information—such as polling data or campaign strategy—could exploit prediction markets to gain unfair advantages.

"The potential for abuse is real," said Rep. Patrick McHenry (R-NC), chair of the committee, in a statement. "We need to ensure these platforms don’t become vehicles for illegal trading."

The Securities and Exchange Commission (SEC) has not yet ruled on whether prediction markets fall under its jurisdiction, though some legal experts argue they could be regulated under existing securities laws. Kalshi and Polymarket operate under the assumption that their contracts are not securities, but the debate remains unresolved.

How prediction markets work—and who’s using them

Prediction markets function similarly to stock exchanges, where users buy and sell contracts based on predicted outcomes. For instance, a $1 contract might pay out $100 if a specific candidate wins the mayoral race. The price adjusts dynamically as more users bet, reflecting changing odds.

Data from Kalshi shows that political betting has surged in recent months. In the 2024 election cycle, over $50 million in contracts were traded on the platform, with mayoral races, congressional elections, and even Supreme Court nominations driving activity.

Polymarket, which also allows bets on geopolitical events like wars, saw a 400% increase in trading volume in 2023 compared to 2022, according to internal reports.

The legal gray area: Could betting on elections be insider trading?

The core concern revolves around whether prediction markets could enable traders to profit from nonpublic information. If a campaign insider or pollster places bets based on confidential data, they could manipulate market prices before public announcements.

Legal scholars point to a 2021 SEC enforcement action against a trader who allegedly used nonpublic information to profit in traditional markets. While prediction markets are structured differently, regulators argue the principle remains the same: preventing unfair advantages.

Kalshi’s CEO, Jed Macosko, has dismissed comparisons to insider trading, stating in a June 14 interview that the platform "operates in full compliance with securities laws." However, lawmakers remain skeptical, with Rep. Maxine Waters (D-CA) calling for further investigation.

What happens next for prediction markets?

Congress is expected to hold additional hearings in the coming months, potentially leading to new regulations. The SEC may also issue guidance on whether prediction markets should be classified as securities.

For now, users continue to bet on elections, but the legal uncertainty looms large. If regulators intervene, it could reshape how prediction markets operate—or shut them down entirely.

Key figures and platforms in the debate

• Kalshi: Founded in 2020, allows bets on political races, policy decisions, and more. Over $50M in contracts traded in 2024.
• Polymarket: Launched in 2018, focuses on geopolitical and political events. Saw 400% trading volume increase in 2023.
• SEC: Has not yet ruled on regulation but is monitoring potential insider trading risks.
• House Financial Services Committee: Leading congressional push for oversight, with hearings scheduled for July.