Let's take a break – I'd like to think about this incredible sentence about one Asset class that democratizes access to events as they unfold. I thought we all had access to election events because we all exist in reality and can learn about it. But if we can't bet on an event, it obviously won't happen. This is a fascinating vision of metaphysics and I would like to hear more about it. For example, no one bet on my birth and therefore there is no asset class that relates to my existence. So am I real?
“Democratizes access” is one way to describe “opening a betting market.”
I'm just kidding. Apparently whoever wrote that just isn't very good at sentence structure. No, I want to get to the heart of the matter here, which is signaled by the phrase “democratizes access.” This phrase is right next to “financial inclusion” in the lexicon of people trying to take your money. “Democratizes access” is one way to describe “opening a betting market,” but I don’t think it’s the most accurate!
Here's what Robinhood allows users to do starting today. If you believe that Kamala Harris or Donald Trump will win the presidential election, you can purchase an “Event Contract.” You can exchange these contracts for real money; it is a type of derivative contract. Robinhood's exciting new investment opportunity comes after the Commodities Future Trading Commission lost a lawsuit against a platform, Kalshi, that offers contracts for political events. This case is being appealed, but it will not be decided until the current election.
What's really fun about election markets is that they can be slightly skewed. Polymarket, for example, has admitted that a single French bettor is responsible for huge bets that Donald Trump will win the presidential race. So while the polls show that the candidates are having a close race, Polymarket puts Trump's chances of winning at 62 percent. Are the betting markets correct? Well, no, not always.
But let's be honest about Robinhood for a minute. “Robinhood is the broker for fun gambling on meme stocks and meme cryptocurrencies.” Bloomberg's Matt Levine noted back in 2021: A quick look at Robinhood's most recent quarterly earnings reports shows that a large portion of its revenue growth came from crypto trading.
I'm old enough to remember a time when Vlad Tenev, CEO of Robinhood, walked around with a straight face, insisting that Robinhood was just a good way to introduce people to the financial markets, as if there were eTrade (and investment clubs before that ) not yet . This was an obvious lie when you looked at the revenue model – Robinhood makes money every time a user trades, and the more frequently a user trades, the more likely they are to lose money.
I don't think anyone can imagine an investor building long-term wealth by betting on the presidential election. Certainly this is not one of the things that goes into a prudent retirement account. However, I think this is just the beginning of the contracts you can bet on with Robinhood, and these could prove even more effective than crypto at generating income.