Caleb Davies, a Democrat who lives in the Minneapolis area, says he’s furious that federal immigration personnel have killed two people this month in his hometown.
He says he was pleased to see Democratic lawmakers respond to Saturday’s fatal shooting of Alex Pretti by pledging to block a bill to continue funding the government — and also saw an opportunity to profit. So he placed about $15,000 in wagers that the U.S. government would shut down by the end of the month.
When Davies made his bets on Kalshi, a prediction market where people gamble on future events in markets that work like those for stocks, the chances of a shutdown were considered low. By Sunday evening, the odds had risen significantly — and Davies had doubled his money by selling some of his positions.
He was still upset about Pretti’s killing in Minneapolis but said betting provided a distraction. “There’s nothing I can do about this guy getting killed. There’s nothing I can do about the politicians saying horrible things … it’s upsetting stuff outside of my control,” Davies said. But he can analyze the odds of what might happen next and make his trades. “It puts me in a different mental, emotional space,” Davies said.
Betting on political events on prediction markets has grown sharply in recent months. There is $129 million at stake on political markets on Kalshi, the company said. About 370,000 people are staking more than $90 million on politics at Polymarket, which lacks regulatory approval to serve American bettors, according to a Washington Post analysis of data provided by Dune Analytics.
Many of those wagers hinge on actions by President Donald Trump or his administration, including whom he will name as the next Federal Reserve chairman; whether the United States will strike Iran in the next six months; and even the words Trump might say in his State of the Union address next month.
The president’s son Donald Trump Jr. is an investor in Polymarket and an adviser to Kalshi. Truth Social, the president’s social media network, is launching its own prediction market that has said it will offer trading related to elections, interest rates, sporting events and more. “We’re democratizing information and empowering everyday Americans to harness the wisdom of the crowd, turning free speech into actionable foresight,” Devin Nunes, chairman and CEO of Trump Media, said in an October statement.
Prediction markets have existed in some form for over 25 years, but the 2024 presidential contest was the first time that billions of dollars in betting had been staked on U.S. politics. Donald Trump’s odds of winning the presidency soared on Polymarket and Kalshi in the final weeks of the campaign, in what proponents of the platforms said was an early indicator of his eventual victory. While some turn to prediction markets to make bets, others treat them as sources of information about the world and future events, browsing them like a news outlet or stock market report.
Expectations of dramatic swings in this year’s midterms suggest prediction markets could be headed for another record year. But their growth and the popularity of wagers on the actions of politicians and the U.S. government have sparked concern about insider trading, market manipulation and the incentives for government insiders to influence the outcomes others are betting on.
Early this month, a Polymarket trader made over $400,000 off a well-timed bet that Venezuelan leader Nicolás Maduro would be ousted, sparking concerns about improper trading activity. A few days later, some X users speculated, without citing specific evidence, that Karoline Leavitt manipulated prediction markets when she abruptly ended a White House news conference right before 65 minutes, a run time that Kalshi traders had staked thousands of dollars on. The White House did not respond to a request for comment.
The lucrative Maduro trade spurred Rep. Ritchie Torres (D-New York) to introduce a bill this month that would ban government employees or officials from betting on events they could directly influence or know material nonpublic information about, similar to the rules for federal workers’ activities in financial markets.
“If you’re both a government insider and a participant in the prediction market, you now have a perverse incentive to push for policies that will line your pockets,” Torres said in a phone interview. “That kind of self-dealing is the very definition of corruption. It should be categorically prohibited within the ranks of the federal government.”
Dennis Kelleher, president of Better Markets, which advocates for financial reforms, argues that some prediction markets related to politics and world events could violate the 1936 Commodity Exchange Act. It prohibits event contracts related to terrorism, assassination, war or anything against state or federal law.
“I think it’s a pretty good argument to be made that the bets regarding Venezuela and Iran are bets relating to terrorism,” Kelleher said, because the Trump administration has referred to Maduro and Iran’s supreme leader, Ali Khamenei, as terrorists.
Robert DeNault, Kalshi’s head of integrity, said the platform is “strongly examining” every contract to make sure it doesn’t run afoul of the law.
Trading on Polymarket is banned in over 30 countries, including the United States, the United Kingdom, Australia, France, Italy and Ukraine, though some users circumvent those restrictions using tools that conceal their location. Polymarket CEO and founder Shayne Coplan said in a December “60 Minutes” interview that it was inevitable that people would trade on inside information but added: “There’s a lot of benefits from it, and people will adapt.” Polymarket did not respond to a request for comment.
Kalshi’s rules prohibit people from participating in markets where they have the ability to influence the outcome or have access to material nonpublic information, as well as if they work for an entity Kalshi uses to determine the outcome of an event. Tarek Mansour, Kalshi’s CEO, said in a LinkedIn post that he supports Torres’s bill..
DeNault, Kalshi’s head of integrity, said the company screens new users for elected officeholders, professional sport players, certain candidates for statewide and federal office, Cabinet members and family members of those people, in addition to monitoring trades for anything improper. He added that the company is happy to collaborate with its regulators and Congress to “beef up” its screening and enforcement.
A spokesperson for the Commodity Futures Trading Commission, Taylor Foy, said in an email that its chairman, Michael Selig, is “committed to promoting market integrity and investor protection in markets within the CFTC’s regulatory jurisdiction.” Although the regulator oversees New York-based Kalshi, it has limited authority over platforms based overseas, like Polymarket.
The risk of insider trading on prediction markets leads Nic Carter, a founding partner at venture capital firm Castle Island Ventures in Miami, to limit his trading there. Prediction markets “are directly monetizing the leakage of private information, and that’s the point,” Carter said.
“If you can’t spot the sucker at the table, you are the sucker,” Carter said. He likens today’s prediction markets to early-2000s online poker, where professionals raked in money by preying on amateurs.
Koleman Strumpf, an economics professor at Wake Forest University who teaches a class on prediction markets, said it’s in the platforms’ best interests to police insider trading. “If there’s enough insiders in a market and everyone else perceives it, the market unravels,” Strumpf said, because people won’t partake in a system they view as rigged.
In addition to politics, both the major prediction market platforms have moved to embed themselves in the worlds of sports and media. This month, Polymarket became the official prediction market partner of Major League Soccer and the New York Rangers, deals it said will include signage during games and offering fans live information from its markets. Odds from the platform appeared in real time on screen during the Golden Globes broadcast this month, and Polymarket data will soon be integrated into the New York Stock Exchange. Kalshi has agreements with the Chicago Blackhawks and National Hockey League, as well as CNN and CNBC.
Despite such deals, the platforms’ face legal uncertainty. Kalshi has been sued by several U.S. states and Native American tribes, which argue that the company compromises their rights to regulate or offer betting on sports.
Davies, the Kalshi trader who doubled his money on bets on a potential government shutdown, acknowledged that others might think his wagers are unsavory. “I don’t think the financialization of everything is good overall for society,” he said.
He considers betting on whether a song will top the Spotify charts to offer little to society, for example. Betting on politics provides an important service by providing hints about the future, he argues, such as the likelihood of the U.S. acquiring Greenland or the government shutting down. “That information is available because people like me are willing to put our money on the line,” Davies said.
Jeremy B. Merrill contributed to this report.
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