The reason is a mystery
If you were planning on placing a wager on an upcoming election on PredictIt, you had better do it now and be sure the results will be in before February 15, 2023. It is that date that the popular political betting exchange may be forced to shut down in the United States.
Late last week, the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) informed PredictIt that it was rescinding the No-Action Letter that the DMO issued in October 2014. The letter essentially stated that PredictIt’s business might violate US law, but as long as the company, created by Victoria University of Wellington (New Zealand), followed certain rules and restrictions, it could operate without fear of prosecution.
Without stating the reason, the DMO has “determined that Victoria University has not operated its market in compliance with the terms of the letter.”
PredictIt has until February 15 to close out markets and shut things down.
Among the requirements set forth in the No-Action letter were that PredictIt had to be “small-scale” and not-for-profit, operate for academic research purposes only, be overseen by faculty who don’t get paid separately for PredictIt, and limit markets to 5,000 traders per contract and $850 max per person per contract.
It is unclear what PredictIt did to violate the terms of the No-Action Letter (there were more than what is listed above), but it is possible that the site had gotten too big. It really surged in popularity during the leadup to the last presidential election in 2020. Hillary Clinton was the odds-on favorite to win, but a devout group of bettors, even if they didn’t want Donald Trump to win, both thought he would and felt they were getting great odds. Trump bettors cleaned up.
Betting exchange experiment
And when we say “bettors” or “bet” when talking about PredictIt, we aren’t talking about wagering in the conventional sense. PredictIt is a betting exchange, like a stock market. Participants buy shares in an outcome, like who will win a Senate race, for between 1 and 99 cents. Prices for each possible result (usually two possibilities) fluctuate based on market trends. If lots of people want to bet on the Democratic side, then that candidate’s price will go up.
When the outcome is determined, winning shares are paid out at a dollar. Losing shares are worth zero.
The idea behind the project is to see if a betting exchange, a situation where people have to put money on their forecasts, is a better predictor of outcomes than are polls. Victoria University has shared the data with other academic researchers at no charge.
PredictIt has said that all customer deposits are safe and can be withdrawn. Open markets are still available for betting and new customers will still be accepted until the site shuts down. The one thing still up in the air is what will be done about any markets that won’t be determined until after February 15, 2023, like the 2022 Presidential election.