How Predictive Market ETFs Are Redefining the Trading Logic of Election Outcomes

Market predictions of political election outcomes are no longer news. The core feature of these markets is allowing participants to bet with real money by buying and selling “Yes/No” contracts to express their probability assessments of events. Contract prices fluctuate between $0 and $1, directly reflecting the market consensus on the probability—for example, if a candidate has a 70% chance of winning, you can buy a “Yes” contract at $0.70. If the event occurs, the contract pays out $1; if not, it expires worthless. This is a money-weighted collective decision-making mechanism, where participants must bear real gains and losses based on their judgments.

The 2024 U.S. election has become a key testing ground for prediction markets. Trading activity on Polymarket and Kalshi has surged, with political contracts dominating the market. Polymarket’s total trading volume in the “Presidential Winner” market is about $3.7 billion, and after receiving CFTC approval, Kalshi’s monthly trading volume reached $127 million by November, with 89% from political and election markets. Notably, weeks before voting, Trump’s winning probability on Polymarket remained above 60%, while mainstream polls showed a tight race or even Harris slightly ahead. The final election results seem to validate the prediction markets’ early “insights.”

However, this does not mean prediction markets are foolproof. But historically, across multiple election cycles, they have demonstrated strong information aggregation capabilities. Studies show that, under conditions of sufficient liquidity and broad participation, prediction markets often outperform traditional polls in accuracy. Established platforms like PredictIt are recognized as effective information aggregators. Polls, by contrast, are more susceptible to sample bias and social desirability bias. The fundamental difference lies in incentives: polls express attitudes, prediction markets bear the outcomes. With no cost versus clear profit and loss, this structural difference shapes how information is processed.

After the election, prediction markets cooled off temporarily, with Polymarket’s daily trading volume dropping about 84%. But entering 2025, prediction markets have rapidly expanded. Currently, there are over 137 prediction market projects, with leading platform Polymarket’s total trading volume exceeding $50 billion and monthly volume reaching $8 billion. From fringe experiments to mainstream tracks, prediction markets are now a different landscape.

From Binary Contracts to Tradable Assets—The ETF Transformation of Election Outcomes

Today, many financial firms are pushing prediction markets toward Wall Street integration. Essentially, these issuers are translating the prices of prediction market contracts into product structures understandable to traditional securities markets, wrapping them as ETFs to allow investors to participate conveniently through regular brokerage accounts.

For example, Bitwise has filed six ETFs, four of which target the 2028 presidential race (Democrat vs. Republican victory), and two related to control of Congress in the 2026 midterms. Similar logic is employed by products from GraniteShares and Roundhill. These ETFs essentially map the binary event contract prices from Kalshi or Polymarket directly into tradable fund shares.

Mechanically, the ETF prices will fluctuate between $0 and $1, reflecting real-time market expectations of election outcomes. At least 80% of the fund’s assets are invested in derivatives related to political events, including contracts from CFTC-approved exchanges like Kalshi or synthetic swaps replicating their performance. Buying these ETFs is no different from buying stocks: orders placed via Robinhood, Fidelity, or other brokers, with expected fees of 0.5% to 1%. Trading venues may include NYSE Arca.

Settlement logic is straightforward—if the election result is clear (e.g., Democrats win), the “Yes” ETF approaches $1; otherwise, it approaches $0. Bitwise plans to quickly liquidate the fund and distribute assets once results are confirmed; GraniteShares and Roundhill have designed more flexible mechanisms, possibly allowing the fund to “roll over” into the next election cycle.

Compared to familiar Bitcoin ETFs (like BlackRock’s IBIT), the difference is significant. Bitcoin ETFs track Bitcoin prices, with unlimited upside and downside, suitable for long-term asset allocation. In contrast, prediction market ETFs are more like binary probability bets, with a fixed cap at $1, resembling insurance or options—winners take all, losers lose their invested capital.

Institutional Capital Influx: A Double-Edged Sword—Liquidity Boost vs. Manipulation Risks

If these ETFs are approved, prediction markets will truly enter mainstream finance. Currently, the main participants are crypto users or professional traders. Once ETFs are available, institutional funds and traditional investors will find it much easier to participate. Companies could use them to hedge policy risk, and portfolio managers might see them as macro risk management tools. Increased liquidity could make price signals more sensitive.

But potential issues also loom large. The 2024 election already showed how prediction market prices can be amplified by media, spread across social platforms, and even influence public opinion. When probabilities are packaged as “market consensus,” they can be easily misinterpreted as objective facts. If the scale of funds further expands, could there be deliberate manipulation to sway public sentiment? PredictIt’s early legal troubles over compliance highlight that these risks are real, not just hypothetical.

Can Regulatory Breakthroughs Make Prediction Markets Mainstream?

Regulatory uncertainty remains the biggest variable. The SEC may view these as inherently “speculative” financial products, raising concerns about price manipulation and moral hazard. Approval processes could impose strict conditions, such as trading limits or disclosure requirements. While the CFTC’s approval of Kalshi’s election futures is a positive sign, the SEC’s stance remains unclear.

The evolution of prediction markets from fringe to center stage depends on their accuracy in forecasting election results, effective risk management, and the development of a robust regulatory framework. How this scene unfolds will profoundly influence how market-based pricing of political events is understood.