Key Takeaways
- At least three ETF shops are interested in rolling out funds that hold event contracts tied to the outcome of U.S. elections.
- The fund proposals signal a move by the industry to offer prediction-markets products suitable for institutional investors as well as individuals.
Prediction market contracts are hot. Investment shops want in—and not just because they want to lure in sports bettors.
ETF issuers Roundhill Investments, Bitwise Asset Management, and GraniteShares have all recently filed with the Securities and Exchange Commission to launch funds that, if approved, would represent bets on this year’s U.S. congressional elections, as well as the 2028 presidential election. They will do this by holding event contracts—derivatives found on prediction market platforms like Kalshi and Polymarket, for example—that typically have binary outcomes; the proposed exchange-traded funds are tied to whether the various elections will swing in favor of the Democratic or Republican parties.
Whether the SEC will approve the ETFs, and how long it takes to review the filings, remains an open question. If they get the nod, they could offer another way for everyday investors to engage with prediction markets—but also institutionalize them much like funds did for cryptocurrency by creating products professional investors, as well as individuals, might want to buy and sell.
It would appear that prediction markets are on a “similar journey” to crypto, Bitwise Chief Investment Officer Matt Hougan told Investopedia. “Maybe the ETFs are a crowning achievement in that journey.”
WHAT YOU NEED TO KNOW
Prediction markets could speed-run crypto in gaining legitimacy as investments if the SEC approves these ETFs.
Prediction markets’ use and popularity is booming, leading companies to develop new businesses around them. Institution-facing derivatives giants including CME Group (CME) and Cboe Global Markets (CBOE) appear to be interested in bringing event contracts, or financial instruments like them, to their customers: CME partnered with FanDuel to launch a prediction markets app that allows users to trade sports events contracts, but also economic indicators and oil and gas prices, while Cboe Global Markets is reportedly in talks with retail brokerages to bring back yes-or-no options that would rival event contracts. Electronic trading platform Tradeweb Markets today partnered with Kalshi and plans to put prediction markets data in front of its users, some of which are institutional investors.
The ETF filings are for now light on details like which exchanges they’d use and how much in fees they would charge, which is typical in the early stages of the approval process. But they do contain nuggets of information that illustrate the novelty of these proposed ETFs, including how they settle and risks specific to these event contracts.
In the event that election outcomes are counter to the ETF strategy—for example, if the Democratic Party wins control of the U.S. Senate following the Nov. 3 elections—the ETFs that bet on the Republican Party “will substantially lose all of its value,” according to filings.
The Roundhill and GraniteShares filings contain a provision that says that if, prior to the formal settlement of contracts, the price of contracts indicate an all but certain victory for five consecutive trading days, the fund will assess that the outcome has been decided early. There is also the possibility of what is called settlement risk in event contracts, according to Roundhill’s filing: That means, for example, that if the outcome of the 2028 presidential elections is later found to be incorrect after the fund exits its positions, “there will be no recourse.”
Once the event contracts are settled, Roundhill and GraniteShares expect to roll the funds into new contracts tied to the next set of elections. Bitwise’s PredictionShares ETFs will terminate the funds soon after the outcomes of the event contracts are determined, effectively mimicking the way prediction market contracts work.