This week in prediction markets:

Kamala Harris will likely pick Pennsylvania Gov. Josh Shapiro as her running mate.

Harris has gained on Donald Trump on Polymarket but hasn’t closed the gap, unlike in polls.

Traders are betting on the Olympic women’s boxing controversy.

The Fed will cut rates fast and hard in September, say bettors

U.S. Vice President and presumptive Democratic nominee Kamala Harris is expected to announce her running mate by Tuesday, and prediction markets show a clear consensus on whom she’ll pick.

Josh Shapiro, the governor of Pennsylvania, has the highest probability of getting the nod, according to traders on Polymarket, the crypto-based betting platform.

“Yes” shares for Shaprio were trading at 68 cents Monday during morning hours in New York, indicating the market sees a 68% chance he will be the Democratic nominee for vice president. Each share pays out $1 (in USDC, a stablecoin, or cryptocurrency whose value is tied to the dollar) if the prediction comes true, and zero if not. The bets are programmed into a smart contract on the Polygon blockchain.

Minnesota Gov. Tim Waltz trails behind Shapiro with 23% odds. All other listed candidates are showing single-digit probabilities. A total of $104 million has been bet on the Democratic vice presidential contract, making it Polymarket’s third-largest by volume.

Shapiro is popular among his constituents in a battleground state, with a 61% approval rating, according to a poll released by Fox News last month. Many on the left wing of the Democratic party dislike him for his support for Israel and school vouchers.

PredictIt, a more traditional betting site where trades are settled in old-fashioned dollars, shows a similar pattern, with 66% odds for Shapiro and 26% for Waltz.

Polymarket, founded in 2020, has been enjoying a breakout year amid enthusiasm for election betting. Monthly volume more than tripled from June to $387 million in July, according to Dune Analytics.

Prediction markets allow traders to bet on the outcomes of real-world events, from elections to sporting matches to the weather. Proponents say they are a more reliable measure of sentiment and source of forecasts than polls because bettors have money on the line and are strongly incentivized to do thorough research and express their true beliefs.

Harris gains on Trump

The last few weeks of prediction market sentiment and polling data show that the U.S. presidential race was less of a test of Donald Trump’s popularity, and more of an expression of incumbent Joe Biden’s unpopularity.

Polls indicate Harris has effectively closed the gap with Trump, and is now tied in polling aggregator 538’s averages.

Harris has the same momentum in prediction markets, but hasn’t yet closed the gap.

Bettors on Polymarket are putting the race at 53-44 for Trump, with Harris up six percentage points in the past week.

Traders are also putting their money on Harris flipping Trump on RealClear Polling’s average, which currently has Trump at 47.7% versus Harris at 46.9%.

Markets that measure a second-order effect of Harris’ surge are also feeling an effect.

While a balance-of-power contract still has a Republican sweep as the highest-probability outcome at 30%, markets that call for Democrats to take the presidency and at least one house of Congress have all seen gains.

Likewise, another contract that asks if Trump will win every swing state is down four percentage points in the last week, and 35 percentage points in the last month since Biden’s gaffe-ridden performance debating Trump.

The market is waiting for the first Trump-Harris debate to be confirmed, an event that could certainly move markets. Trump’s camp has said that a debate with Harris scheduled for Sept. 10 on ABC has been “terminated” with Biden’s departure, and instead proposed a debate a few days earlier on Republican-friendly Fox News – complete with a full arena audience.

So far the Harris campaign has said no, and the market agrees that she won’t show up, pricing in a 37% chance of it happening before Oct. 15.

Culture-war bets

The International Olympic Committee says boxers Yu-Ting Lin, from Taiwan, and Imane Khelif, from Algeria, are biological females.

On Crypto Twitter, which remained skeptical of IOC claims, a meme quickly emerged about the easy money to be made betting on contestants accused of being men competing in women’s sports.

But did this meme translate into a higher betting volume compared to other sports markets?

Sort of.

A contract on Polymarket asking bettors to pick the outcome of the Olympic Women’s Welterweight boxing competition, where Khelif is competing, has just over $60,000 in volume, which puts it squarely in the middle of sports contracts on the site.

Contracts asking bettors which country will win the most medals, and the outcome of basketball, soccer contests, men’s tennis, or 100 meter dash all have significantly more market interest, with basketball leading the pack at $1.5 million.

This makes sense because basketball and soccer are more popular than women’s boxing, tennis has household names such as Novak Djokovic competing, and the photo-finish nature of the 100-meter dash brings out bettors’ animal instincts.

But the women’s boxing contract still has much more volume than other well-known sports or personalities, like one asking about gymnast Simone Biles’ – star of a recent Netflix documentary – medal count.

If anything, controversy can be good for sports. Just look at the viewership ratings for the Olympics, which became a culture war flashpoint during the opening ceremony: they are way up.

Rate cuts soon?

The unwinding of the Japanese Yen carry trade made the Monday trading day a bloodbath for crypto, with over $1 billion in liquidations during Asia trading hours, pushing ether down 20% and bitcoin 15%, erasing gains made year-to-date. When markets opened in the U.S. the global selloff intensified.

All this has accelerated the conversation about rate cuts in the U.S. Earlier this year, a sizable minority of traders said cuts weren’t going to be on the agenda, with the market giving close to a 60% chance of there being at most one.

Now, bettors on Kalshi, the U.S.-regulated prediction market platform where trades are settled in dollars, are punting on a 100 basis point cut happening this year, and a 90% chance of the first cut happening after the September meeting.

On Polymarket, bettors have upped the ante, giving the possibility of an emergency Fed meeting – defined as a meeting called outside the usual planned schedule – a 60% chance of happening.

Interestingly, traders in traditional markets via interest rate futures have priced in a 100% chance of 50 basis points or more of Fed rate cuts by the bank’s September meeting versus Polymarket, where bettors are seeing just a 66% chance of the same thing.

If there’s an encouraging signal from all of this for crypto, it’s that bitcoin won’t fall much more. Bitcoin traded below $50,000 during Asia business hours Monday before recovering. Kalshi bettors say it will go to $44,000 at its lowest before year’s end, while Polymarket bettors are giving it a 56% chance that it won’t go below $45,000 by the end of August.