A judge issued an opinion that effectively allows Kalshi to offer all the nascent platform’s election-related contracts in the U.S.—including ones involving specific candidates—giving Kalshi a leg up in competing against Polymarket, the dominant player in the space.
Polymarket already is offering election-related bets, although residents of the U.S. are currently prohibited from using the platform.
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Posted September 12, 2024 at 11:32 am EST.
A DC judge released an opinion on Thursday morning that allows betting platform Kalshi to host election betting on its online platform. The opinion allows Kalshi to directly compete with Polymarket, the most prominent election betting market, albeit one which does not permit American users to place bets.
During a hearing on the case that began at 10:30 am ET on Thursday, the judge, Jia M. Cobb, rejected a request by the CFTC for an additional stay on the ruling, based on the fact that Polymarket is already offering election wagering in an unregulated way. But Cobb gave the CFTC the opportunity to appeal her decision to a circuit court, which the CFTC said it would pursue. Cobb had previously granted a three-day stay after the agency argued that it needed the opinion to decide whether or not to appeal.
Based on Cobb’s latest opinion, Kalshi would be able to host two types of election-related bets: those on specific candidates, such as whether Donald Trump or Kamala Harris will win the presidential election, as well as more general election-related bets, such as whether Democrats or Republicans will control the House of Representatives. “The CFTC’s order exceeded its statutory authority,” the opinion read. Addressing the CFTC’s contention that it has authority over Kalshi’s bets as “gaming,” she continued: “Kalshi’s contracts do not involve unlawful activity or gaming. They involve elections, which are neither.”
Read more: The US Presidential Election Isn’t the Only Reason for Polymarket’s Success
Kalshi allows users to bet via cash or crypto, and enforces know-your-customer (KYC) policies requiring users to upload information verifying their identities. The order was filed based on a lawsuit Kalshi filed last November against the CFTC for blocking a product on the platform in which users could bet on which party would take control of the House.
The order allows Kalshi to become a direct competitor to Polymarket, but with the added advantage that it can host American users. Polymarket, which has received considerable amounts of attention and citations in the press in the run-up to November’s presidential election, was prohibited from serving American customers as part of a 2022 settlement with the CFTC. Despite the ban, many Americans likely access Polymarket via VPNs.
Polymarket has had over $100 million in monthly active trading volume for several months this year, compared to Kalshi’s $13 million of trading volume in January 2024, according to Dune Analytics data (more recent numbers for Kalshi are not available).
Kalshi and Polymarket did not respond to requests for comment for this story. The CFTC declined to comment.
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Last week, Judge Cobb initially issued an order permitting Kalshi to host election bets without an opinion. However, the CFTC then asked for a 14-day stay, which was reduced to three days. According to former US Attorney Kevin J. O’Brien, the judge’s delay in releasing an opinion was not unusual. “She wanted to get a decision out so the parties had guidance, but then that was neutralized when the other side asked for a stay,” he told Unchained.
Kalshi had pushed for guidance as soon as possible, arguing that the company’s revenues were dependent on the ability to host election bets well before the November presidential election. An appeal by the CFTC would not automatically result in another stay.
The opinion now gives Polymarket legal standing to argue it can host election bets in the United States if it registers with the CFTC. Polymarket initially settled with the CFTC in 2022 after it failed to register with the regulator before offering bets, resulting in a $1.4 million fine and closure of its markets in the United States.
The CFTC in this case blocked Kalshi’s election betting product on the basis that it considered the bet equivalent to gaming, which it has jurisdiction over under the Commodity Exchange Act, and that it violated state laws. The outcome of the suit does not enable Polymarket to launch in the US because of its lack of registration with the CFTC.
Read more: How to Invest In Crypto Depending on Whether Trump or Harris Becomes President
In its lawsuit with Kalshi, the CFTC made the argument that allowing election bets was “contrary to the public interest” because it could threaten election integrity. Judge Cobb acknowledged this concern in her opinion, but said that because this consideration was not the legal question at hand, she was unable to rule on these grounds.
“This case is not about whether the Court likes Kalshi’s product or thinks trading it is a good idea,” she said in her opinion. “The Court’s only task is to determine what Congress did, not what it could do or should do. And Congress did not authorize the CFTC to conduct the public interest review it conducted here.”
Judge Cobb was nominated by President Joe Biden and began serving in October of 2021. Her background is primarily in civil rights, having served as a public defender for the District of Columbia from 2006 to 2012 and later as a partner at Relman Colfax, a plaintiff-side civil rights firm. Crypto is not her specialty, however, as her most well-known cases as a prosecutor were in cases of housing discrimination and criminal justice misconduct.
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