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The Free Market’s Wager
“The best argument against democracy is a five-minute conversation with the average voter. The best argument for it is everything else.”— Winston ChurchillThe Economists Who Wanted Markets for EverythingThe intellectual case for prediction markets was not made by the platforms that now profit from them. It was made by some of the most distinguished economists and legal scholars of the twentieth century, and their arguments deserve serious engagement — not because the arguments are wrong, but because the markets that emerged bear almost no resemblance to the markets they envisioned.Kenneth Arrow, the Nobel laureate whose work on general equilibrium and information economics shaped modern microeconomics, argued as early as 1963 that markets in contingent claims — contracts that pay based on
The Line We Must Draw
“The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.”— F. Scott FitzgeraldThanks for reading Kale's Substack! Subscribe for free to receive new posts and support my work.Two Markets Wearing One MaskThe prediction market industry is not one market. It is two markets operating under a single regulatory classification, and the failure to distinguish between them is the source of every unresolved question in the current debate.The first market consists of macro-level event contracts — elections, championships, major economic indicators — that reference outcomes to which identifiable commercial enterprises have genuine balance-sheet exposure. A hotel chain’s revenue varies with which city hosts the Su
The Arguments They Will Make
“The law is not the private property of lawyers, nor is justice the exclusive province of judges and juries.”— Justice Thurgood MarshallThe Kalshi PlaybookOn September 12, 2024, Judge Jia Cobb of the U.S. District Court for the District of Columbia granted Kalshi’s motion for summary judgment in its challenge to the CFTC’s prohibition of election contracts. The court held that the CFTC had exceeded its statutory authority and that election contracts do not “involve” gaming under CEA Section 5c(c)(5)(C). Elections, the court reasoned, are civic processes, not games of chance like poker or slot machines.The CFTC under Chairman Behnam appealed. The D.C. Circuit heard oral arguments on January 17, 2025. Then the administration changed. Chairman Selig took office in December 2025. In May 2025,
The Bucket Shop Returns
“Those who cannot remember the past are condemned to repeat it.”— George Santayana, The Life of Reason (1905)The Original Prediction MarketsIn the storefronts and hotel lobbies and drug stores of 1880s America, a new kind of establishment appeared. They were called bucket shops, and they offered ordinary people — clerks, factory workers, small shopkeepers — the opportunity to speculate on commodity prices and stock prices without actually buying anything. A customer would deposit a dollar and “purchase” the right to profit or lose based on the movement of wheat, corn, or railroad stock prices posted on a ticker tape. No actual commodity changed hands. No stock certificate was issued. The bucket shop operator took the other side of every trade. The customer was betting against the house.The
SEC oddly greenlights payment stablecoin 2% haircuts, while the Federal Reserve provides the math showing that ISDA initial margin calculations need to be (considerably) higher for unpegged crypto.
Masking the true purpose of the state's attempted restraint on competition (the "2 billion in taxes" collected annually from gaming and the "unfair competitive advantage ... [as] Kalshi does not need to pay licensing fees") behind...
If we are banning "casino-style" constructs, then I guess we turn the stock market's lights off as well. A politically motivated, state tax-incentivized effort to shield incumbent players—one that disregards the legitimate risk-management...
A historic step for crypto with the crypto market structure bill coming out of the Senate Ag Committee, while OFAC shows it's not messing around with crypto exchanges, Hawaii attempts to outright ban prediction markets, and Nevada tries desperately t...
Senate Banking and Senate Ag both have postponed their respective crypto market structure markup hearings until the end of January - but Chairman Selig at the CFTC is making all of the right moves early on:
Expected move from Tennessee (if you have ever taken a glance at the massive fees collected by the state for gaming licenses & the blanket tax imposed based on betting volume, rather then profits) and following the state’s death blow to sweepstak...
After its IPO in September, Gemini was approved today by the CFTC to enter the prediction markets as a DCM (competing with Polymarket, Kalshi, and Crypto.com). Gemini's application took 5 years to approve, so getting in line at the CFTC is the name o...
The States continue to fight a losing battle: The State of Connecticut Fires Legal Volley Against Sports Event Contracts. On Dec. 3, the Connecticut Department of Consumer Protection issued cease-and-desist orders to Robinhood, Kalshi, and Crypto.co...
President Trump is moving into the prediction markets (along with everyone else).
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