ETF issuers Bitwise and GraniteShares have filed with the US Securities and Exchange Commission (SEC) to launch funds tied to event contracts on the outcomes of upcoming US elections, marking a significant step in the financialization of political predictions.
Bitwise’s new lineup, branded as PredictionShares, will debut on NYSE Arca with six prediction market-style ETFs. These funds are designed to pay out based on the results of the 2026 and 2028 elections. Specifically, two funds will pay out if either a Democrat or a Republican wins the 2028 US presidential election, while two more will do so if Democrats or Republicans win the Senate in 2026, and the final two if either party wins the House.
Investing in Political Outcomes
The investment objective of these funds is straightforward: to provide capital appreciation to investors if the specified political outcome occurs. Each fund will invest at least 80% of its net assets in binary event contracts, or political prediction market derivatives traded on CFTC-regulated exchanges. These contracts settle at $1 if the referenced outcome occurs and $0 if it does not.
For instance, the prospectus for one of the funds states, “The fund’s investment objective is to provide capital appreciation to investors in the event that a member of the Democratic Party is the winner of the US Presidential election taking place on November 7, 2028.” However, it also warns, “In the event that a member of the Democratic Party is not the winner of the 2028 Presidential election, the fund will lose substantially all of its value.”
The Market Dynamics
The price of each fund’s shares will fluctuate daily, reflecting the market’s implied probability of the specified outcome. This means the share price can range between $0 and $1, influenced by factors such as polling data, news events, and investor sentiment.
GraniteShares, another ETF issuer, has also filed a prospectus for six similar funds with the same structures based on US election outcomes. This move underscores the growing interest in leveraging ETFs to bet on political events.
Expert Analysis
James Seyffart, a Bloomberg ETF analyst, commented on the trend, saying, “The financialization and ETF-ization of everything continues. This is not the first filing of this kind, and I think it’s extremely unlikely that these will be the last.” Seyffart’s remarks highlight the broader trend of financial products expanding into new and unconventional areas.
Precedents and Future Implications
These filings are not without precedent. Roundhill, another ETF issuer, filed for similar prediction market-style ETFs on February 14, offering six funds based on the outcomes of the presidential, Senate, and House elections. The increasing number of such filings suggests a growing appetite among investors for products that allow them to hedge or speculate on political events.
The emergence of these ETFs raises questions about the role of financial markets in political processes and the potential for increased market volatility tied to election cycles. While these funds offer a new way for investors to participate in political predictions, they also introduce new risks and uncertainties.
Conclusion
The launch of prediction market-style ETFs by Bitwise and GraniteShares represents a significant development in the intersection of finance and politics. As more issuers enter this space, the market for political prediction ETFs is likely to grow, offering investors new tools to navigate the complex landscape of political outcomes. However, the success of these funds will ultimately depend on their ability to accurately reflect and anticipate the dynamic nature of political events.
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