coindesk.com
This week in prediction markets:
Polymarket bettors think Binance ex-CEO Changpeng "CZ" Zhao will spend less time in prison than what the U.S. DOJ is asking for.
The CFTC weighs a ban on election derivatives.
How low will the Federal Reserve go?
Binance's founder and former CEO, Changpeng "CZ" Zhao, will be sentenced in a U.S. court in Seattle Tuesday. The Department of Justice said in a recent sentencing memo that he should spend three years in prison, citing the scale of his misconduct.
Polymarket bettors think he'll be out much sooner.
"Yes" shares for the "less than six months" contract on the crypto-based prediction market platform were trading at about 42 cents Monday, indicating a 42% chance CZ will be out in less than six months. (Each share pays out $1 if the prediction comes true, and zero if not.)
Trading levels show a 17% chance he'll get 6-11 months, and a 19% chance that he'll get 12-17. All in all, the money says there's around a 96% chance that he'll be out in less than two years and a less than 2% chance he'll get sentenced for 30-35 months, which is around what the feds are asking.
The traders might be counting on letters of support to help convince the presiding judge to trim the sentence significantly from what the DOJ asked for.
Among those who signed such letters included in a submission to the courts were Max S. Baucus, former U.S. Ambassador to China; professors from Columbia and CZ's alma mater McGill Universities; Morgan Stanley Managing Director Sean Yang; and members of the ruling family in the United Arab Emirates.
"There is no excuse for my failure to establish the necessary compliance controls at Binance,” CZ wrote in his own letter, while giving an assurance that this would be his only “encounter with the criminal justice system.”
CFTC vs. political bets
The U.S. Commodity Futures Trading Commission is looking to tighten the screws on prediction markets, Bloomberg reports.
The regulator is considering a ban on derivatives for betting on U.S. elections and may also restrict other event contracts, including those on sports and global health crises, the news service said. This comes as the CFTC faces a lawsuit from Kalshi, which doesn't offer direct election contracts, but bets on approval rating numbers or other political events like appointments, and is challenging the agency's decision not to approve its plans for election-related contracts.
Even though the Republican primary season was one of the shortest in history, as most contestants dropped out in weeks, unable to trump Donald Trump, interest in the general election is at an all-time high, going by the nearly $117 million – up from $100 million a few weeks ago – bet on a Polymarket contract about its outcome.
On paper, this $117 million would not have come from Americans, because part of a settlement with the CFTC requires Polymarket to block U.S.-based users.
Keep in mind that at a state level, betting on elections is widely illegal. Nevada spells it out clearly in Nevada Revised Statues § 293.830, which says "Any person who makes, offers or accepts any bet or wager upon the result of any election, or upon the success or failure of any person or candidate, or upon the number of votes to be cast, either in the aggregate or for any particular candidate, or upon the vote to be cast by any person, is guilty of a gross misdemeanor."
In other countries, election gambling is also illegal. In Taiwan, the Presidential and Vice Presidential Election and Recall Act specifically prohibits it, and a Polymarket contract about that nation's recent general election led to arrests and a complete national-level block of its domain.
PredictIt, a popular U.S. election betting site, is allowed to operate under a no-action letter from the CFTC which limits the number of bettors on each question to 5,000 and the size of each bet to $850. The regulator yanked the letter last year and ordered PredictIt to shut down but the platform sued and won the right to stay in business.
Will U.S. interest rates drop below 5.25%?
There's renewed talk of the Federal Reserve cutting rates, as fears of stagflation grip the traditional finance and crypto markets.
On Kalshi – which unlike Polymarket is licensed by the CFTC, does business only in the U.S. and settles bets in dollars – the highest single probability (37%) is for zero cuts this year, although there's a combined 60% odds for 1-3 cuts.
When the cuts come, how low will they go?
Lower than 5.25%, the hive mind says, giving it a 62% chance, and a 36% chance of it being lower than 5%.
The central bank's benchmark rates is currently at 5.5%.
Of course, the last time the Fed seriously cut rates was during the Covid-19 pandemic, and before that, in 2019 as a way to hedge against the possible consequences of then-president Trump's trade wars with China. It was a very different time back then, as the Fed said there wasn't enough inflation.