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Welcome to the On the Margin newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s edition:

• What’s the deal with prediction markets? Casey breaks down the latest developments for Polymarket and competitors. 

• Ben chatted with an industry legal chief who (more patiently than some) awaits Kamala Harris’s crypto stance.

• Another look at this week’s mixed big of economic data.

You can’t ban what’s already banned!

Ah, Polymarket. 

The betting app — or “prediction market,” as the company describes itself — is all the rage these days. Total crypto assets on Polymarket have tripled this year, according to DeFiLlama data.

Users have wagered $606.6 million on the US presidential election outcome alone. Bets start at just $0.44. It’s a remarkably low barrier to entry — that is, if you’re not a US citizen. 

That’s right. Polymarket, in theory, blocks US residents and citizens from using the platform, as stipulated by a 2022 settlement with the CFTC. Per the agreement, Polymarket paid $1.4 million in civil penalties for allegedly running an unregistered platform for trading options contracts. Polymarket did not confirm or deny the allegations, but they agreed to ban US users. 

According to the CFTC, the bets that Polymarket facilitates —  such as “How many times will Trump tweet this week?” or “Is the Bieber baby a boy or girl?” — are derivatives and thus under the agency’s purview.

“All derivatives markets must operate within the bounds of the law regardless of the technology used, and particularly including those in the so-called decentralized finance or ‘DeFi’ space,” CFTC acting director of enforcement Vincent McGonagle said in 2022. 

Of course, we know there are Americans using Polymarket, just as we know US residents found workarounds to use other “banned” platforms like FTX and Binance. Polymarket’s terms of service prohibit the use of VPNs, but you don’t have to look hard to find step-by-step instructions on how to circumvent the rules. 

American statistician and journalist Nate Silver joined Polymarket as an adviser earlier this year. Other investors include Peter Thiel and Vitalik Buterin. 

"Probabilities really matter when you're trying to make plans," Silver told Axios last month. 

Now, more than two years after the CFTC’s settlement, lawmakers and regulators are showing renewed interest in cracking down on election gambling. In May, the agency issued a proposed rule to ban all derivatives trading related to US elections. 

Eight Democratic senators and representatives cosigned a letter earlier this month urging the CFTC to ban political betting markets, which they argued “could influence and interfere with election” results. 

To be clear, the CFTC has not charged Polymarket with violating its 2022 settlement. 

The rule, if passed, would likely have a greater impact on Polymarket competitors Kalshi and PredictIt, neither of which accept crypto payments. Kalshi is registered with the CFTC but is currently suing the agency for denying contracts for election betting. 

PredictIt also sued the CFTC back in 2022 after regulators attempted to shut down the platform. The company was granted a temporary injunction the following year, allowing it to continue operating in the US. For now, PredictIt still offers election contracts. 

The pushback from industry heavyweights appears to focus on how the proposed CFTC rule would impact Polymarket, despite the fact that the 2022 settlement essentially already enforces (at least in theory) these regulations. 

Gemini founders Tyler and Cameron Winklevoss penned a letter to CFTC secretary Christopher Kirkpatrick earlier this month, expressing outrage that the agency is trying to deny Americans access to prediction markets like Polymarket. 

I guess the Winklevii never got the memo re: the 2022 settlement? I’d take that bet.

— Casey Wagner

The combined value of National Pension Service’s shares of Coinbase ($51 million) and MicroStrategy ($34 million) as of the second quarter, according to a recent filing. 

The South Korean public pension fund (the world’s third-largest) had also held COIN shares in Q1, but it decreased that position by roughly 24,000 shares quarter over quarter. The allocation to MSTR was new.

Despite the fund opting to allocate to these crypto stocks, the disclosure indicates it did not hold any bitcoin ETFs as of June 30.

Crypto’s prominence within capital markets is growing day by day. 

The On The Margin Roundup crew will hit the stage at Permissionless III synthesizing crypto market conditions within the broader macroeconomic environment. 

Casey wrote yesterday about Sen. Chuck Schumer’s Wednesday night appearance, and pledge, at a virtual “Crypto4Harris” event.

The likes of Mark Cuban and Anthony Scaramucci also showed face.

But declarations during the event appeared to ring hollow for some given that neither VP Kamala Harris, nor a member of her team, spoke. 

The gathering of Democrats came as industry watchers await to see whether Harris offers a “reset” of sorts on crypto policy — a move expected to attract a portion of what many deem to be a key voting bloc in November. 

Veronica McGregor, chief legal officer at crypto wallet Exodus, said some of the expectations for Crypto4Harris’s “introductory” event may have been a bit “unreasonable.”

While the group has members in contact with people close to Harris, she added, the VP’s presidential campaign is young. Biden dropped out (and endorsed Harris) just 26 days ago. 

“Expecting on short notice to be able to get either the vice president, or her folks, on such a call right now I think would be a pretty heavy lift,” McGregor told Blockworks.

Still, eyes remain on how the presumed Democratic nominee positions herself on this issue. Despite more Democrats showing support for crypto in recent months, Joe Biden vetoed a resolution set to ax the SEC’s SAB 121.

“While people want to saddle her with ownership of everything the Biden administration has done or not done with crypto, I don’t think that’s fair,” McGregor argued. 

On the other side, Trump said he would back the bitcoin mining industry and floated a number of other crypto-related promises at last month’s Bitcoin 2024 conference in Nashville. 

“It’s going to be difficult for a sitting vice president to sort of throw grenades the same way her opposition can,” McGregor said. “There are people calling for her to announce she’s going to fire Gary Gensler. You can say that as a campaign promise; as a practical matter it’s a very different thing.”

The Exodus executive said she may speak at a future Crypto4Harris event. McGregor had also been in contact with the Trump campaign this summer. She noted her company — whose public listing was delayed by the SEC in May — is willing to back candidates of either party in favor of “sensible, practical and appropriate” crypto regulation.

Harris was expected to reveal economic plan details during a Friday speech in North Carolina around the time this newsletter was being published. McGregor said she was unsure if crypto would be a “plank in the platform,” but noted she was watching for something about “fostering innovation and technology in a responsible and appropriate way.”  

The bottom line, McGregor added: “What would be helpful is if we heard from [Harris’s] campaign that … we are going to recalibrate and not do regulation by enforcement, because that practice is very destructive.”

It seems we all agree we want to know more.

— Ben Strack

Happy Friday! It was a relatively quiet week, which I’m sure was welcome after last week’s market turmoil. Still, economic data was a bit of a mixed bag, putting markets in a precarious position ahead of next month’s FOMC meeting. Here’s a recap: 

• The Consumer Price Index fueled recessionary fears Wednesday when it showed cooling inflation — a drop some fear may be due to an economic slowdown. The market response was therefore muted as investors fretted over whether the Fed can achieve a soft landing. 

• On the other hand, initial jobless claims decreased for a second straight week, coming in at 227,000 for the week ended Aug. 10. This was below expectations of 235,000, helping to bolster hopes that the labor market is not running too cool. Monthly job additions are still positive, and continuing unemployment claims are on the decline, adding to signs that the jobs market remains healthy.

— Casey Wagner

• Recent one-week realized volatility for both BTC and ETH spiked to 90-100% above the two-month trailing measure, according to a Thursday Gemini report. The last time bitcoin reached such an extreme was during the FTX collapse in November 2022, the company notes. ETH last saw similar spikes in the one-week to two-month volatility ratio in August 2023.

• Bitcoin had surged 3% over the past 24 hours, reaching $59,270 as of 2 pm ET Friday. At a price of roughly $2,610, ether’s gain over that span was 1.5%.

• We mentioned earlier this week that Coinbase had re-entered Hawaii. In case you missed it, read up on what changed in the state, and which jurisdictions the crypto exchange is focused on entering now.

• Have a great weekend, all. And as always, thanks for reading!