Prediction markets rose to fame during the 2024 U.S. election, and now they face another critical test.
On Tuesday, the U.S. midterm elections officially began voting. The latest data from prediction markets such as Polymarket shows the probability of Democrats sweeping both the Senate and the House at roughly 82%. Data from the Kalshi platform shows the probability of Democrats taking the House at about 97%, and the probability of taking the Senate at about 78%.
This judgment is broadly in line with the direction of mainstream polls. As of Election Day, total betting volume on Kalshi related to the midterms has reached $1.33 billion, while betting on congressional markets on Polymarket stands at about $145 million, bringing the industry's combined betting scale to more than $1.48 billion, a record high.
This midterm election is seen as a vote of public confidence in Trump's second term, and its outcome will not only reshape the balance of power in Congress but also directly affect the credibility trajectory of the emerging prediction market industry. Industry insiders noted that if the final results deviate significantly from the high-probability bets on prediction markets, the industry's reputation will suffer a serious blow.
Blue Wave Bets: What Are the Odds of Democrats Taking Both Chambers
On the House side, prediction market data shows the probability of Democrats gaining seats at about 94% to 97%; on the Senate side, Democrats' odds are about 74% to 78%. Taken together, the probability of Democrats winning both chambers is about 82%.
Looking at specific competitive seats, several key Senate races are the core focus of this round of betting. According to statistics from the nonprofit Anti-Corruption Data Collective (ACDC), the Texas Senate seat has attracted about $67 million in bets, the highest among all states, while Kalshi data shows that figure is already close to $100 million. Data shows the market-implied probability of Democratic candidate James Talarico defeating Republican Texas Attorney General Ken Paxton at about 76%.
The Michigan Senate seat has attracted more than $31 million in bets, with the market showing the probability of Democratic candidate Abdul El-Sayed defeating Republican Mike Rogers at about 83%. In addition, Senate seats in Maine and South Carolina have also attracted substantial betting funds.
Kalshi data shows that a comprehensive market covering the two parties' congressional control, seat counts, and balance of power has a total trading volume of about $277 million, with the Texas Senate seat alone accounting for about a quarter of that.
Trading Highly Concentrated, House Draws Less Attention
Although the overall betting scale is considerable, midterm election-related trading is highly concentrated in a few high-profile Senate seats, while trading volume in competitive House districts is notably thin.
According to a Bloomberg analysis of Kalshi trading data, only 5 House seats on Kalshi have trading volume exceeding $1 million. An ACDC analysis report pointed out that liquidity in almost all midterm election-related markets on Polymarket and Kalshi is extremely limited, with just a few thousand dollars in bets enough to significantly move the prediction probabilities in the relevant markets.
"When platforms open tens of thousands of markets, but most do not have national visibility and cannot attract enough betting volume, a large number of loopholes emerge—a malicious participant only needs a small amount of money to manipulate the odds," said David Szakonyi, co-founder of ACDC and a political science professor at George Washington University.
Kalshi spokesperson Jack Such rebutted the conclusion, calling ACDC's findings "baseless," saying the actual cost of manipulation is far higher than the report claims and that its markets have a strong ability to correct for such manipulation. Polymarket declined to comment.
Prediction Market Credibility Faces a Test
Prediction markets gained widespread fame during the 2024 U.S. presidential election, when their betting results were ahead of mainstream polls and pointed early to a Trump victory. However, since then, the industry has shown clear deviations in Brazil's presidential election and Israel's election.
According to Reuters, Brazilian President Luiz Inacio Lula da Silva defeated right-wing rival Flavio Bolsonaro in last month's election, but before the vote Kalshi and Polymarket showed his odds of winning at only about 20%. Joshua Clinton, a political science professor at Vanderbilt University, analyzed that this may be because sophisticated traders overcorrected for the systematic error of polls underestimating the strength of right-wing candidates. The platforms responded that events with a 20% probability do happen from time to time, and political surprises are not rare.
Yesha Yadav, vice dean of Vanderbilt Law School, said, "Tuesday's midterm elections truly represent a real test of a new wave of prediction markets," and the results of many congressional races this year will provide a more complete scorecard for the industry's overall performance.
Sean Patrick Maloney, CEO of the Coalition for Emerging Prediction Markets, said markets never claim to be flawless, but in "a world full of chaos and biased news sources," prediction markets offer an unbiased way to forecast events.
Political Betting Shrinks, Industry Model Struggles
It is worth noting that although the overall betting scale has hit a new high, compared with 2024, enthusiasm for political betting on prediction markets has actually cooled somewhat, and the industry's structural difficulties have emerged.
According to a Bloomberg analysis of Kalshi and Polymarket data, U.S. election-related trading volume in the final week before Election Day this year was basically flat versus the same period before the 2024 election, showing no obvious growth. At the same time, Polymarket's U.S. election trading volume has declined significantly from two years ago. In October this year, political betting accounted for only about 1% of combined trading volume on Kalshi and Polymarket, compared with as much as two-thirds during the 2024 presidential election.
The explosive growth in platforms' overall trading volume has mainly come from sports and cryptocurrency price betting, as well as so-called "parlays" and other high-risk multi-event combination products.
This phenomenon creates dual pressure on the industry. Koleman Strumpf, an economics professor at Wake Forest University, said, "They need to prove to investors that they have another business, and they also need to prove to regulators and judges that the more socially valuable parts of prediction markets matter."
Carlos Hardenberg, portfolio manager at MCP Emerging Markets, reminded investors that prediction markets are valuable reference tools, "but they should not be confused with certainty."
For reference, ProFrac Holding Corp. is listed on the U.S. market under the ticker ACDC.
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