Midterm Shift Puts Prediction Markets and CFTC Under Political Microscope

Washington is preparing for a potential change in the House that could alter how prediction markets and their regulator are treated. If Democrats win control next month, the platforms and the Commodity Futures Trading Commission face a new wave of legislative and investigative attention. This shift follows a period where lawmakers have struggled to understand the mechanics of these exchanges while introducing a growing number of regulatory bills.

Since 2025, nearly 30 bills have been introduced in Congress regarding prediction markets. Most were sponsored by House Democrats and focus on restricting members of Congress and their staff from trading on these platforms. Several proposals also target specific contract types, particularly those involving sports. None of these measures has passed into law yet, but a Democratic majority would likely prioritize them for floor votes.

Committee powers may also turn toward Donald Trump Jr. and his ties to Kalshi and Polymarket. Trump Jr. serves as an adviser to both companies, and his venture capital firm, 1789 Capital, invested in Polymarket. A spokesperson for Trump Jr. stated that he does not sit on the investment decision-making committee and cannot allocate capital. He also noted that his advisory role is separate from his firm's investments. Another representative called the concerns politically motivated, asserting that Trump Jr. never deals with the federal government on behalf of the companies he advises.

Kalshi CEO Tarek Mansour acknowledged that the connection creates an optics issue but said it has never been used to gain favor. Sen. John Curtis, R-Utah, has independently called for a probe of Trump Jr.'s interests. The companies also maintain ties to Democrats, with Kalshi employing former Obama staffer Stephanie Cutter as a senior policy adviser and Polymarket hiring former congressional chief of staff Rob Eskridge to lead government relations in September.

Former Rep. Sean Patrick Maloney, who leads the Coalition for Prediction Markets, warned his party against excessive regulation. He argued that pushing the industry offshore would move activity to platforms with weaker protections against manipulation. A Polymarket spokesperson said the company welcomes scrutiny, while Kalshi expressed support for frameworks on insider trading and consumer protection.

The CFTC may also face pressure regarding its capacity to oversee the sector after staffing cuts in 2025. In July, the Government Accountability Office accepted a request from Sen. Elizabeth Warren, D-Mass., to review the agency's workforce reduction. Warren is expected to chair the Senate Banking Committee if Democrats win that chamber and plans to expand oversight of the agency.

CFTC spokesperson Zach Fulton rejected the criticism, noting that the agency regulates nearly $600 trillion in notional value and can manage prediction markets of less than $1 trillion. He stated that the commission is on track to hire about 100 employees in critical areas by the end of 2026. The agency has recently sought public comment on vertical integration and warned exchanges about manipulation risks in mention markets.

Despite these efforts, the CFTC continues to defend the platforms against state arguments that their sports offerings constitute gambling. It also keeps approving new products. David Aron, a former CFTC employee, said committees in a Democratic-led chamber would be a little sharper, adding that the process will not be fun.