Prediction markets were supposed to be a democratic innovation—a way to tap the wisdom of crowds for sharper political forecasts. But a growing influx of institutional capital is blurring the line between a genuine prediction and an insurance premium, and the consequences for political discourse are mounting.
When Hedging Looks Like Forecasting
Consider a pension fund with heavy exposure to energy infrastructure, whose value swings with control of the White House. The fund’s treasurer isn’t making a political bet; he’s hedging risk. So, through a broker, the fund buys a large position in a contract on the less favorable candidate winning. If the election goes the wrong way, the payout offsets losses. That move is perfectly rational—but to anyone watching the market, it’s indistinguishable from a genuine forecast.
“We’re seeing it in contracts related to economic indicators, like GDP growth rate, whether interest rates are going up or down,” former Commodity Futures Trading Commission lawyer Jake Preiserowicz told Wired. The infrastructure is already expanding: Kalshi recently launched a commodities hub designed to let anyone hedge or speculate on commodity directions. Using political contracts the same way is the logical next step.
The Wisdom of Crowds—Diluted
Proponents have long hailed prediction markets as superior to polls. NYSE President Lynn Martin noted at a February forum that on Election Night 2024, Polymarket showed President Trump winning before any other source. On election eve, with polls tied, Polymarket had Trump at 57 percent. “The markets tend to be the single best piece of information available out there,” Rutgers statistics professor Harry Crane told Fortune. But that crowd wisdom is now being diluted by institutional money.
Goldman Sachs CEO David Solomon disclosed on his firm’s fourth-quarter earnings call that he had met with the two leading prediction market platforms and had a team evaluating the space. The Intercontinental Exchange, parent of the NYSE, announced an investment of up to $2 billion in Polymarket. Kalshi raised $1 billion at a $22 billion valuation in March, doubling its valuation in three months. Institutional capital enters for myriad reasons: to hedge, to profit, to access data, to gain positioning. Some special interests enter to manufacture momentum—or outcomes.
The Distortion Cycle
The sequence is straightforward. Institutional hedges move prices. Campaigns read those prices as momentum. Journalists cite them as forecasts. Donors discover that moving a market is cheaper than running ads—and pays dividends if they’re right. No coordination or malice is required; just each actor doing what the system incentivizes, in a system nobody fully designed and nobody is currently watching.
We already have a preview. In 2024, a single anonymous trader using four accounts bet $30 million on Trump on Polymarket, at one point representing 25 percent of all Electoral College contracts on the platform. The market moved; journalists cited the odds. A Vanderbilt study later found that Polymarket, which imposes no position limits, was accurate just 67 percent of the time, compared to 93 percent on PredictIt, which capped individual bets at $850. That suggests concentrated wealth—not crowd wisdom—was moving the price.
Real-World Consequences
The South Carolina Republican primary for governor offers another illustration. Lt. Gov. Pamela Evette has cited her Kalshi standing in official campaign releases, while Rep. Nancy Mace joked publicly about supporters “buying the dip” on her behalf. Both treat anonymous market prices as evidence of momentum without any way to know who is behind them. When those prices increasingly reflect institutional hedging rather than collective belief, elected officials could find themselves responding to signals that have nothing to do with voters.
This has already drawn attention from lawmakers. Schumer has demanded a ban on prediction market bets, citing national security risks. Meanwhile, Moreno has proposed a Senate ban on prediction market trading amid insider trading fears. The arrest of a soldier over a Maduro bet underscores the national security dimensions.
The inverse problem is perhaps more troubling. A major donor who places a large position on a favorable electoral outcome and then deploys comparable resources to influence that outcome has not merely expressed a political opinion—he has structured a transaction where political spending produces financial return. This is what we mean by special interests: donors, PACs, and politically motivated actors who stand to profit from the outcomes they are already working to shape. Citizens United converted political spending from an expense into an investment. Prediction markets are the logical next step: a mechanism that gives well-capitalized actors a direct profit motive to manufacture the outcomes they bet on.
