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US Government ORDERS PredictIt.org to Close – Maybe Not?

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PredictIt.org, one of the leading U.S.-friendly online prediction markets, has announced that it is closing its doors effective Feb. 15, 2023. This decision follows an announcement from the Commodity Futures Trading Commission (CFTC), which has changed its mind regarding the legality of PredictIt's operations in the United States.

PredictIt.org has announced that it will be closing due to pressure from the government

About PredictIt

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PredictIt is an endeavor run by the Victoria University of Wellington, which enables users in the United States to trade yes/no binary option contracts in markets concerning various political events. When the outcome of a market resolves, all winning contracts pay out at $1 apiece while the others become worthless. While a contract is trading, its price is between $0 and $1 with the current price at any time reflecting how probable traders believe the option to be.

PredictIt lists more  than 100 marketsSome of the Markets Available on PredictIt

This kind of marketplace must usually register with the U.S. authorities as a designated contract market or foreign board of trade. However, PredictIt.org has relied upon a 2014 No-Action letter from the CFTC's Division of Market Oversight, which stated that the site would not have to register as either a designated contract market or foreign board of trade and it would not be subject to any enforcement action as long as it complied with certain conditions. To learn more about how PredictIt works, check out our thorough PredictIt review.

In a press release dated Aug. 4, 2022, the CFTC revealed that it has withdrawn the No-Action letter. The reason given is that “DMO [Division of Market Oversight] has determined that Victoria University has not operated its market in compliance with the terms of the letter and as a result has withdrawn it.”

Statement From PredictIt

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Visitors to the PredictIt.org website now see a message at the top of the page saying, “Notice to traders: CFTC staff action on No-Action Letter.” Upon clicking on the notice, an announcement from PredictIt appears:

Notice Displayed to PredictIt UsersNotice Shown to Visitors on the PredictIt.org Website

Basically, this news informs customers that all existing markets will continue until they resolve or Feb. 15, 2023, whichever comes first. In addition, no new markets will be created. New deposits and signups will be allowed however. All withdrawal requests will be honored. It has not yet been decided how PredictIt will handle markets that are currently active with end dates beyond the Feb. 15 deadline.

What Exactly Did PredictIt Do Wrong

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Official communications from the CFTC are oddly reticent on the subject of specifically why the No-Action letter has been withdrawn, explaining merely that Victoria University “has not operated…in compliance with the terms of the letter…” PredictIt, for its part, contends that “all open markets are within the terms of the No-Action letter.”

Terms Under Which PredictIt Obtained Permission to Operate

According to the CFTC's explanation for why it is withdrawing No-Action relief, there were 9 conditions under which PredictIt was allowed to offer its services. The University pledged that its event contract market would:

  1. be small-scale and not-for-profit;
  2. be operated for academic and research purposes only;
  3. be overseen by faculty at the University, without receipt of separate compensation;
  4. offer event contracts consisting of two submarkets for binary option contracts concerning political election outcomes and economic indicators;
  5. be limited to 5,000 traders per contract, with an $850 investment limit per participant in any contract;
  6. not offer brokerage services or charge commissions to participants;
  7. utilize a third-party service provider to perform know-your-customer (“KYC”) due diligence on its participants;
  8. only charge those fees necessary to cover the fulfilment of the KYC process, regulatory compliance, and basic expenses to operate the proposed event contract market; and
  9. limit advertising to media outlets where there is a high likelihood of reaching those interested in the subject matter of its event contracts, provided that such advertising prominently discloses that the platform is unregulated, experimental, and being operated for academic purposes.

Which Condition(s) Did PredictIt Violate?

Some of the conditions listed, like the trader and investment limits, are cut-and-dry and leave little room for interpretation. Others, like “be small-scale,” seem so vague as to mean whatever the authorities declare them to mean.

Fortunately, there's certain information available that sheds some light on the situation. Bloomberg ran an article that cites “four people familiar with the matter” who explained that CFTC staff felt that PredictIt had strayed too far from its original function as a small marketplace designed primarily for research purposes. Furthermore, PredictIt's tech partner Aristotle Inc is a well-known political consulting and data firm, and so it wasn't clear whether or not it was using information gleaned from PredictIt's market prices to engage in for-profit activity, which would be against the stipulations laid out in the No-Action Letter.

What Will PredictIt Do Now?

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Despite the announcement of a Feb. 15 closing date, there are signs that PredictIt does not intend to just give up and quietly close its doors. Not only does it continue to argue that none of its actions have violated the terms of the No-Action Letter, but it has also provided a link for its users to click on to leave a comment for the CFTC.

With about six months remaining until the deadline draws nigh, there is hope for a reversal from the CFTC or at least a stay of execution. Perhaps negotiations between the two parties will lead to a reinstatement of the No-Action Letter or the institution of a revised agreement with clarified rules.

The founder and CEO of PredictIt, John Phillips, headed to the Star Spangled Gamblers podcast to give his thoughts on the situation. Star Spangled Gamblers is a site devoted to political prediction markets, and the podcast in question is dated Aug. 8.

On the podcast, Phillips said:

I think there's a recognition that this is an important area. It can either be regulated or unregulated or somewhere in between, self-regulated. Ignoring it doesn't make it go away...This is one that has been bubbling up for a while, and I think it's inaccurate to think people don't care about this. I think people do, and I think thoughtful people, on Capitol Hill and elsewhere, understand that there need to be some decisions made. And I think those decisions are going to get made in a rational way.

Reaction

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The news about PredictIt.org has hit popular internet forums and social media sites, and most commentors are upset at the CFTC's actions:

Twitter user “Permanent Bear” disagrees with the government's actions against PredictIt
Redditor “kwanijml” thinks the regulatory state is bad

Where to Bet Now?

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It looks as though political betting at PredictIt might become a thing of the past. Nevertheless, it's possible to place wagers on politics at quite a few offshore bookmakers. You can learn all about them and how to sign up with our guide to the best USA online sportsbooks.