Thursday could be a pivotal day for political prediction markets, a former niche industry that’s seen explosive growth in this U.S. election year.

At 10:30 a.m. Eastern time (14:30 UTC), Judge Jia M. Cobb of the U.S. District Court for the District of Columbia will hear arguments over an emergency motion by the U.S. Commodity Futures Trading Commision.

Last week the CFTC lost the case filed by Kalshi, a prediction market that sued the regulator for barring it from listing contracts on which party will control each chamber of Congress after the election.

In its emergency motion, the CFTC asked Cobb to make Kalshi wait at least another two weeks before listing its election markets. The judge had yet to publish an opinion explaining her rationale for ruling in Kalshi’s favor, and the regulator argued that until it has this information it can’t make an informed decision on whether to appeal. (The opinion dropped Thursday just before this article was published.)

Cobb granted a stay, but only through the end of Thursday’s hearing. Depending on how the hearing goes, Kalshi might be cleared to launch its election markets as soon as Friday. But the judge could also make the firm wait until at least a few days after she issues her opinion.

If that happens, and the CFTC then decides to appeal, the judge or the appeals court could conceivably grant another stay pending the outcome of that appeal. Which could take as long as a year – meaning Kalshi wouldn’t be able to take advantage of the 2024 political betting fever in the last two months before the election. (An appeal wouldn’t automatically generate a stay.)

All this is happening as the CFTC considers a proposed rule to prohibit election contracts at all the exchanges on its watch.

“Door number one is … we see regulated political prediction markets,” said Koleman Strumpf, an economics professor at Wake Forest University in North Carolina who has studied the centuries-long history of election betting in the U.S. “Door number two is … we’re back in this kind of strange limbo.”

Proponents of prediction markets argue they have spillover benefits to the general public, by revealing what true experts with skin in the game actually think is going to happen, rather than the pompous prognostications of pusillanimous pundits.

“Participants are financially incented to provide accurate predictions, regardless of personal bias since correct predictions lead to profits, while incorrect predictions result in losses,” wrote Will Ogden Moore, who leads research and product at Grayscale Investments, in a client note Wednesday.

‘Huge demand’

Kalshi lists markets on a variety of event outcomes, ranging from Taylor Swift’s album sales to the wind speed of Hurricane Francine, but nothing right now about election results.

At the moment, the only company that can legally operate political prediction markets in the U.S. is PredictIt, which operates under a narrow regulatory exemption. It, too, took the CFTC to court last year, after the regulator tried to shut it down.

But the dearth of regulated venues in the U.S. has not constrained political betting.

Polymarket, which is barred from the U.S. under a CFTC settlement, has been the main beneficiary of this year’s boom, with $875 million worth of cryptocurrency bet in a smart contract on the presidential election as of Wednesday afternoon. (Unlike PredictIt and Kalshi, which settle trades in dollars, Polymarket’s bets are denominated in USDC, a dollar-linked token, or stablecoin.)

“There’s no future where we don’t have political prediction markets,” Strumpf said. “Supply rises to meet demand. There’s huge demand for this stuff.”

Unlike PredictIt, where bets are capped to $850 per contract and no more than 5,000 traders may bet on any contract, or Polymarket, which requires a rudimentary understanding of crypto (and an IP address outside the U.S.) to use, Kalshi is courting Wall Street bigwigs. Its congressional control contract would allow positions up to $100 million.

Allowing regulated prediction markets would be in the public interest, Strumpf argued, because “if any of these concerns that the CFTC has are valid, these are aboveboard, regulated markets that are in the sunlight.”

One of those concerns is the potential impact on election integrity – and the CFTC’s mandate. While the agency regulates futures markets, it also has jurisdiction to police fraud in the spot, or cash, markets for the underlying commodities. The agency has experience investigating things like fraudulent cattle sales, but says it is unprepared to become an “election cop.”

“Our new authorities would per se include monitoring elections, candidates and countless participants in the political machinations that proliferate in the media and cyberspace,” CFTC Chair Rostin Benham said when he denied Kalshi’s application last year.

To listen to Thursday’s court hearing, members of the public can dial +1-877-411-9748 and then type the access code 6640172.

UPDATE (Sept. 12, 12:03 UTC): Adds note that judge’s opinion came out just before publication.