Wall Street Targets Prediction Markets with New ETF Filings Ahead of Midterms
By John Nada·Feb 18, 2026·6 min read
Wall Street is advancing into prediction markets with new ETF filings ahead of the U.S. midterms, but manipulation risks and regulatory scrutiny loom large.
Major Wall Street players, including Bitwise, Roundhill, and GraniteShares, are pushing into prediction markets with new ETF filings, significantly ahead of the U.S. midterm elections. These funds aim to provide exposure to contracts tied to the upcoming electoral outcomes, including the 2028 presidential election and the 2026 congressional races. The increasing interest in these products reflects a broader trend where financial innovation intersects with political events, paving the way for new investment opportunities.
Experts predict strong demand and liquidity, particularly from hedge funds, but caution against potential manipulation risks associated with political event markets. The filings come at a time when the Commodity Futures Trading Commission (CFTC) is asserting its authority over prediction markets, a move that could reshape the regulatory landscape for these instruments. With the midterms approaching, the interest in these event-based contracts is surging, as historical patterns suggest heightened trading in political outcomes. The expected launch of these ETFs under the PredictionShares brand reflects a growing trend in the financial sector to capitalize on electoral volatility.
Fund managers Bitwise Asset Management, Roundhill Investments, and GraniteShares are seeking to launch prediction-market ETFs, with Bitwise products falling under a new platform brand, PredictionShares, offering exposure to contracts tied to the 2028 U.S. presidential race and the 2026 House and Senate midterms. The listed funds cover the 2028 U.S. presidential election and the 2026 congressional midterms, including separate products for whether Democrats or Republicans win the presidency in 2028, and whether Democrats or Republicans control the Senate and the House in 2026. This specificity indicates a tailored approach to capturing the nuances of the political landscape, catering to diverse investor interests.
“Given the level of interest in these event markets, providing liquidity would be very attractive for various hedge funds and quant trading firms,” said Ganesh Mahidhar, an investment professional at Further Ventures. Mahidhar pointed to surging demand for contracts tied to U.S. election outcomes, suggesting that the political climate is not only a source of uncertainty but also a fertile ground for speculation and investment. As political polarization intensifies, platforms like Polymarket and Kalshi are seeing increased speculative activity, which adds another layer of complexity to the market dynamics.
However, Kadan Stadelmann, CTO at Komodo Platform, warned that the nature of political prediction markets may invite insider trading and manipulation, raising ethical and regulatory concerns. Stadelmann's insights highlight the dual-edged sword of financial innovation: while it can create new opportunities, it also poses significant risks that regulators must address. The CFTC's involvement could signal a significant shift in how these markets are regulated, emphasizing the need for clarity in a landscape where state and federal jurisdictions are often at odds.
U.S. midterm elections are widely treated as referendums on the sitting administration, and historically, the president’s party rarely gains seats across both chambers. This dynamic tends to increase hedging and speculative activity around outcome probabilities, making prediction markets particularly enticing for investors looking to capitalize on electoral trends. For example, according to a prediction market called Myriad, which is owned by Decrypt’s parent company Dastan, President Trump’s approval rating is currently edging past the midpoint at 50.1%. Such metrics can significantly influence market behavior as traders adjust their strategies based on perceived political realities.
The growing interest in prediction markets also reflects a broader cultural shift towards embracing alternative forms of investment. Mahidhar noted that political polarization and policy uncertainty have supercharged activity on platforms such as Polymarket and Kalshi, where traders already speculate on elections and macro events. “Regulating these markets and making it accessible to the broader retail audience is the next step in the evolution of event contracts,” he mentioned, adding that market makers are drawn to volatility and tight spreads. This suggests that as regulatory frameworks develop, there could be a substantial increase in participation from retail investors, potentially democratizing access to these markets.
Stadelmann, however, pointed out that timing also reflects market conditions and product competition. With U.S. crypto funds seeing weeks of outflows and spot Bitcoin ETFs delivering muted momentum, issuers are searching for new themes. In this context, Bitwise is positioning early to capture opportunity “before regulators catch up with the technology.” This proactive approach could provide Bitwise with a competitive edge, tapping into a market that is ripe for innovation. He added that demand could still be strong, asserting, “In the U.S., gambling has become a part of life’s fabric… I suspect liquidity will be robust.” This sentiment indicates a broader acceptance of investment strategies that were once considered fringe, signaling a potential shift in how investors perceive risk and opportunity.
Meanwhile, prediction market operators are facing enforcement actions across multiple states. Regulators in Nevada, Massachusetts, and other states have moved against election and sports event contracts on platforms like Kalshi and Polymarket, stating that they amount to unlicensed gambling. Court fights are now underway over state versus federal authority, illustrating the complexities of regulatory compliance in this evolving space. The jurisdictional disputes highlight the challenges that market participants face as they navigate a patchwork of laws and regulations that can vary significantly from one state to another.
This jurisdictional fight is increasingly being taken up by the Commodity Futures Trading Commission. Chairman Michael Selig has stated that the agency has filed an amicus brief in a federal appeals court asserting its authority over prediction markets and event contracts. In a Wall Street Journal op-ed, Selig emphasized that the CFTC “will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets.” This assertion of federal authority not only underscores the CFTC's commitment to regulating these markets but also signals to investors that a more structured environment may be on the horizon.
The CFTC's position is significant as it can redefine the classification of prediction markets, arguing that event contracts operate under CFTC rules as swaps rather than gambling. This distinction could have profound implications for how these markets are treated legally, potentially providing a clearer path for their operation and expansion. As regulatory clarity improves, it may also encourage more institutional investors to enter the space, further enhancing liquidity and market stability.
The development of these ETFs and the regulatory landscape surrounding them will be critical in shaping the future of prediction markets. The growing acceptance and potential for these financial instruments reflect broader trends in financial innovation and regulatory evolution. As the midterms draw closer, the interplay between market dynamics, regulatory oversight, and political events will be crucial to watch. The success of these ETFs may redefine how investors engage with political risk and could set a precedent for future financial products tied to electoral outcomes.
As Wall Street continues to explore the potential of prediction markets, it is essential to remain vigilant about the risks involved. The potential for manipulation and insider trading looms large, particularly in a market driven by information that can be sensitive and confidential. As such, the ongoing dialogue between regulators, market participants, and investors will be crucial in establishing a framework that mitigates these risks while fostering innovation.