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Prediction Markets ETFs may soon be coming to retail investors and even retirement plans, but perhaps not as quickly as expected.<\/p>\n
The Securities and Exchange Commission during the second Trump administration has sought to differentiate itself from Biden-era regulators in what it calls a move away from. “Regulatory Creep”<\/a> It says this has held back markets and innovation. But on Tuesday it surprised some in the financial industry when launch delayed<\/a> 24 Forecast Markets ETFs says it needs more time to study the products before they are released to investors. <\/p>\n Roundhill Investments, Bitwise and GraniteShares all filed with the SEC in February to launch funds linked to prediction markets covering elections, economic data and other real-world events. Under SEC rules, ETFs automatically take effect 75 days after filing unless otherwise barred by the SEC. That 75-day period was set to expire last week. According to ETF experts, the SEC’s intervention should not be surprising, even though under the Trump administration the SEC has been focusing on steps to ease market access, as well as less aggressive monitoring of new financial products such as the crypto sector. <\/p>\n Prediction market ETFs represent a new kind of regulatory challenge. Unlike traditional ETFs, these investments are linked to event contracts and essentially place bets on real-world events. Some of the most notable, but also controversial, contracts on prediction markets like Kalashi are related to politics, such as election results, a focus for the ETF. <\/p>\n The delay in the prediction markets ETF brings back memories of the years it took for a spot bitcoin ETF to be approved by the SEC. But ETF experts say the delay is more likely to be temporary as the agency wants more information from issuers about how the funds will work. “As with any new performance move into an ETF, there will always be some last-minute hiccups,” said Todd Sohn, chief ETF strategist at Strategas Securities. “You can substitute any number of new asset classes and ETFs. It’s usually a case where things are pushed back a little bit,” he said.<\/p>\n “We recognize that innovative ETF products often require additional review, particularly around liquidity, market structure and investor protection. Our priority is to ensure investors are comfortable with the way these products work and understand the role they can play within a regulated ETF structure,” GraniteShares CEO Will Rhind said in a statement to CNBC.<\/p>\n Regulators have reason to take it slow. A unique private credit ETF launched last year by State Street ran into several SEC hurdles after launch, which ETF experts say should have been part of the pre-approval review process.<\/p>\n But the most obvious comparison spot is the Bitcoin ETF, which faced years of SEC resistance before gaining approval in January 2024. Regulators spent months grappling with concerns about market manipulation and whether the underlying crypto markets were mature enough to carry a regulated investment product. Before approving spot Bitcoin ETFs, the SEC repeatedly rejected multiple applications, arguing that issuers failed to demonstrate how they would prevent fraud or crypto manipulation. <\/p>\n “Focusing on investor protection and market manipulation … is very important to me and obviously to the SEC. It’s in our DNA,” SEC Chairman Paul Atkins recently said on CNBC’s “Squawk Box.” <\/p>\n Questions about insider trading in prediction markets have intensified recently. <\/p>\n The Commodity Futures Trading Commission has primary oversight of the prediction markets, but Atkins said in testimony<\/a> Said before the US Senate in February that the SEC needed to take an active role in regulating this new area of \u200b\u200bfinancial activity. \u201cThe prediction market is absolutely something where there are potentially overlapping jurisdictions,\u201d Atkins said. “That’s a big issue we’re focused on. … It’s mostly, at least currently, on the CFTC side. But we need to adjust to the way we’re addressing these markets.”<\/p>\n “Are the prediction markets being manipulated? Is there some kind of insider information going on within those markets?” Sohan said. “The ETF wrapper is proven. It works, it’s convenient, it’s transparent. It’s more about the markets they’re going to be tracking,” he said.<\/p>\n Final approval of the Spot Bitcoin ETF required a legal battle and political pressure. Grayscale successfully challenged the agency in federal court in 2023, when judges said the SEC failed to explain why it treated spot Bitcoin futures differently than Bitcoin futures ETFs. Kalshi sued<\/a> The federal government won the right to initiate a contract in the 2024 presidential election, in a precedent-setting case.<\/p>\n According to Anthony Capozzolo, an attorney at Lewis Bach Kaufman Middlemiss who specializes in white-collar law and regulatory matters, a unique factor in this case is the Trump family’s relationship with prediction market operators. Donald Trump Jr. is an advisor to both Kalshi and Polymarket, and is affiliated with a firm that has an investment stake in the latter. \u201cAt a minimum, they want to better understand what impact these ETFs may have on retail clients,\u201d Capozzolo wrote in an email to CNBC.<\/p>\n Sohn believes that despite the delay, the broader regulatory approach within the Trump administration leads him to conclude that the agency’s pause does not reveal a deep opposition to the core concept of prediction market ETFs. “I think all systems are go unless I see otherwise on the SEC website,” Sohn said. But he also said there are reasonable questions to ask about primary prediction market exchanges. Kalash<\/a> Which are relatively young and do not have a long history of liquidity testing or market depth. “Even though it’s growing, I don’t know how deep the market is,” he said.<\/p>\n