Major news for prediction markets broke late Monday night when the Commodity Futures Trading Commission (CFTC) dropped its appeal against Kalshi in a DC court. The appeal dates back to the first big showdown between the federal regulator and Kalshi in 2023, when the CFTC argued the platform's US Presidential election event contracts were a form of gaming.
By dropping its appeal, the CFTC has effectively unlocked the door for prediction markets to operate freely across the United States. Much to the chagrin of state-level regulators, who have been trying to argue that prediction markets are gaming by another name.
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CFTC Settles Major Court Case & Stance On Kalshi
Again, this dropped appeal dates back to 2023 when the federal regulator sought to stop Kalshi from offering US Presidential election contracts, calling them "gaming". The court ruled in Kalshi's favor, rejecting the CFTC's definition of these election contracts as gaming and denying the regulator's request for a stay pending this appeal, citing undue harm to Kalshi's business.
By dropping this appeal, the CFTC has signaled to Kalshi and other prediction market operators like Crypto.com and Robinhood that it's dropping this fight. A huge relief for these operators who've been fighting on multiple fronts to keep their business and industry alive.
Prediction markets have been served a cease-and-desist letter from at least seven states: Illinois, Maryland, Montana, Nevada, New Jersey, and Ohio. Kalshi has fought back by filing lawsuits in Nevada and New Jersey, where they've received favorable rulings. Circuit courts in both states have stated that only the CFTC has jurisdiction over Kalshi.
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Federal Regulator All But Officially Pro-Prediction Market
With only an acting chair at the head of the CFTC, as legal challenges mounted for prediction markets, and the responsibility falling squarely on the feet of the CFTC, the federal regulator's silence on prediction markets had been deafening.
While one of Acting Chair Caroline Pham's first orders was roundtable discussions on prediction markets, those discussions were curiously canceled at the last minute last week. It was a subtle sign that the federal commodities regulator did not want to indulge in discussion on regulating the industry and was leaning pro-prediction market.
That was all but confirmed by dropping this appeal.
The CFTC being pro-prediction market shouldn't come as a shock. When Caroline Pham announced a prediction market roundtable discussion, the acting chair had stated: "Prediction markets are an important new frontier in harnessing the power of markets to assess sentiment to determine probabilities that can bring truth to the Information Age."
Also, the President's nominee for CFTC chair is Brian Quentenz, a current member of Kalshi's board of directors.
