Fireside: Kalshi

Great to be here, and great to be here in conversation with John, head of crypto at Kalshi. It feels like every single day I open Twitter and there is a new story, or Kalshi is in the news about something. John, what is your background? You are head of crypto at Kalshi, as I understand it. What brought you to Kalshi, and what does head of crypto mean there?

​

Of course. Thanks for having me, and thanks for taking this at such a last minute. I have grown up in the crypto sphere my entire career. I joined around 2017 trading ICOs, and all I have worked in is this industry. I have really embedded myself in crypto Twitter and the ecosystem, worked in each chain, and Bitcoin particularly was my first entry into crypto.

​

I joined Kalshi around nine months ago to lead the crypto division. We have grown a lot since, and I think we have also made a lot of inroads into the industry.

​

That is great. At Kalshi, what does the crypto division consist of? What does crypto at Kalshi involve in terms of the products and what that looks like?

​

A lot of people think of us as a prediction market. We have a lot of different categories ranging from sports to politics to culture, but crypto is actually our second-largest category, and Bitcoin makes up 90% of our crypto market volume. It is also one of our main payment methods on the platform. Aside from accepting wires into fiat, crypto is one of our main payment rails.

​

Bitcoin is the largest form of payment for us. It is larger than stablecoins, even in the US.

​

Oh wow, really?

​

Yeah, it is really quite meaningful. In fact, we are available in 140 countries, not just the US, and outside of the US the only form of payment we have right now is crypto. So it is a huge part of our business. I think we owe a lot to the Bitcoin and crypto community for that.

​

Interesting. It sounds like at Kalshi you have Bitcoin wired into both the infrastructure of the company and the product offerings. I am trying to understand why someone would use Kalshi to trade Bitcoin, or trade the price of Bitcoin. Why use Kalshi instead of just buying Bitcoin spot or using some of the other more traditional exchange offerings?

​

Prediction markets are this interesting new thing where you can apply a question about the future to anything. It was almost unexpected that it had such great product-market fit in crypto, I think. The reason people love trading crypto on Kalshi is because a lot of people find it more accessible to trade Bitcoin on an exchange like ours compared to just trading spot.

​

There are a lot of people in the crowd who are experts in Bitcoin and have been here for a long time, so it might not apply to you, but there are definitely a lot of newcomers to this space who think having a defined expiry date and defined strike prices over discrete time frames makes it a lot less mental overhead. It makes it easier for people to trade, and it makes it easier for them to form conviction around specific theses.

​

I think event trading is pretty huge on Kalshi as well, where you can essentially form these discrete bets or trades, or essentially legs of a trade. If something big happens in Bitcoin, you can make a trade around that.

​

The event trading is interesting. I was looking at the different markets that Kalshi has related to Bitcoin before doing this, and there are some really interesting markets on whether Satoshi's coins will ever move, or markets related to quantum computing's impact on Bitcoin. It got me thinking that it is interesting that you can get financial exposure to these tail-end events. The chance of Satoshi moving his coins is something that traditionally, if you are just looking at options on Bitcoin or something like that, is hard to hedge. Could you tell me a little bit more about how people are using Kalshi to hedge around these tail risk events, or way-out-of-distribution events in Bitcoin, and why people do something like that?

​

Bitcoin is a really interesting asset because it bundles up a lot of different trades. The value proposition of Bitcoin has also changed over time. Over the arc of its history, it went from initially being a payment method to pay for your pizza, to a store of value asset, to something you could take to get exposure to regulatory or political events or institutional adoption.

​

Now the most topical thing is the Google quantum paper about quantum risk, breaking Bitcoin encryption, and the upgrade. As you mentioned, the Satoshi market is trading at around 7% right now that he will move his coins before the end of the year, which might be higher than a lot of people expect.

​

Prediction markets allow you to disaggregate this huge asset class into all the individual drivers and risks, with the quantum one being a particularly strong one. Another one could be the CLARITY Act or other regulatory events, which we have markets on as well, and they have a decent amount of volume.

​

Even whether you think Bitcoin will go above 100K before the end of the year, I think it is around a 44% chance right now. Those are pretty interesting hedging examples you can have.

​

Even broadly outside of crypto, we have had people and institutions, and even in sports, athletic departments hedge insurance risk among insurance brokers about paying out an athlete bonus. They would essentially hedge the risk on Kalshi. If the athlete was able to make it to the playoffs or some further game in the season, then they would have to pay this bonus, and they would take that risk and lay it off here.

​

It is really interesting how integral to the policy process these markets have become. I feel like it really burst onto the stage with the elections, obviously after you got the green light to operate in the US. I worked in the Senate for the past two years before my current role at BPI, and even during the policy-making process, for staffers inside the Hill, we were constantly looking at Kalshi and Polymarket and the different prediction markets to see the odds of legislation passing or something like that. Even for insiders, it is interesting. Now working at BPI, we still use it pretty often just to get a sentiment check and see how the odds are looking.

​

That brings me to another question. A lot of people will interchangeably use Polymarket and Kalshi to refer generically to prediction markets. How do you see Kalshi positioning itself separately from Polymarket right now and into the future?

​

The companies are definitely seen similarly, given that prediction markets are kind of a new industry. But even from the very beginning, there were two very different philosophies about building the companies. We take a very strong regulated approach to things. We care mostly about being a pro-market institution and being able to trade on anything.

​

Our product velocity is quite high. We have shipped a mobile app, we have combos, and we are available in 140 countries. We have a very strong broker strategy. We power prediction market offerings for Robinhood, Coinbase, PrizePicks, and Phantom, and we have also announced an integration with XP, which is the Brazilian broker.

​

Philosophically, I think we also take a strong stance against insider trading, for example. We have a lot of market surveillance efforts going into that, and I think a lot of this type of stuff matters at scale. The founders spent four years essentially working with regulators to legalize prediction markets in the US, whereas a lot of our competitors took the route of going offshore and not going within the financial system or the regulatory framework. That is an important thing for us, and I think it matters a lot when you are trying to introduce a new asset class to the world.

​

The insider trading piece is interesting. I feel like that is really top of mind for a lot of people right now. There was the recent story about the soldier betting on the outcome of the Maduro raid, and that has gotten a lot of people asking where we draw the line with insider trading for prediction markets. With a company that is doing SEC disclosures and public filings, it is pretty easy to tell these are our financials, we have not released them yet, and that is clearly material nonpublic information. How do you draw that line with something that is much more generic, like what songs are going to be played at the Super Bowl or something like that?

​

In that particular case with the Maduro soldier, they are actually blocked from trading on Kalshi. We do have KYC and market surveillance, and I think we have stronger protections for our traders. The question of where you draw the line for insider trading is not unique to prediction markets. It applies to stock markets as well and to all other asset classes, which is: how do you define material nonpublic information?

​

I think it is a nuanced question that requires nuanced solutions from a regulatory standpoint. The reason we take this stance against insider trading is that I think it is the most pro-market thing you can do. If you can protect your traders, you can grow the asset class into the true scale it has the potential to become. Otherwise, it becomes purely an insider-only game where insiders can extract.

​

The whole purpose of prediction markets is to offer this information aggregation layer, where traders can go out and seek information that they do not have insider access to, but they are able to do research and calibrate their knowledge and answers to get to a greater expectation of what the market value of this event is.

​

If you have consistent, not only toxic but insider flow, it really ruins the information aggregation ability of prediction markets in the long term. It is pretty clear that someone who takes actions where they are able to, for example, stand outside of the Super Bowl stadium and look at how many cars are parked, or who comes in and out, that is not insider trading because it is fair access. Anyone could do that. But it is definitely a developing question.

​

It is difficult. It is almost philosophical in some ways, what is public and nonpublic for these kinds of events that are outside the norm of what people are typically trading. But I do think there is this through line, just like with Bitcoin, this idea of information markets, aggregating information, and using the internet to bring all these people together. It is a really powerful concept. It has been thought about for 20 or 30 years, and it is really cool to see it finally coming to light, especially here in America.

​

To close it out, how do you see the importance of this technology playing forward for the next five years? This is still relatively new. Kalshi just got the green light to operate really in 2024. How do you see the next five years, and why is it important to have this technology here in America?

​

With prediction markets, it is not only this new form of trading, but really a new form of building an exchange entirely from the ground up. At Kalshi, we have 24/7 money movement. It is a 24/7 exchange while still being within the CFTC regulatory framework. Compared to other legacy exchanges in traditional finance, that is a huge step-function change.

​

I know we are used to it in crypto already, but I think we are starting to see this model structure change and take over traditional systems as well. We are going to see a lot more liquid markets outside of traditional trading hours. We are going to see what the crypto industry has been so advanced in spread toward the rest of the traditional financial system.

​

Finally, we are going to see institutional adoption of prediction markets, where there will be large institutions and hedge funds disaggregating stocks into discrete components and taking trades based on that to hedge specific tail risks or to take a more precise trade on something that otherwise would just be an indirect proxy.

​

Interesting. It sounds like a very exciting future. Thank you so much for joining us here in Bitcoin Vegas and having this conversation. It has been great.

​

It was a pleasure. Thank you, guys.