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- CFTC asserts exclusive authority over prediction markets despite state pushback.
- Crypto.com appeals Nevada’s ruling; CFTC defends federal jurisdiction.
- Legal battle over prediction markets highlights state versus federal authority.
The U.S. Commodity Futures Trading Commission (CFTC) has reaffirmed its exclusive authority over prediction markets, particularly those involving event contracts, such as sports-related wagers. This claim was made in a recent filing to the U.S Court of Appeals 9 9th Circuit by the CFTC. It is a case about Crypto.com and the state of Nevada, in which the latter had tried to deny the platform the opportunity to sell contracts of sports events. Crypto.com had already sued the state of Nevada back in June in order to prevent state intervention.
The court of lower instance declared that these sports-event contracts did not fall under the jurisdiction of the CFTC and could be governed by the gaming law of Nevada. Crypto.com filed an appeal of the decision, and the CFTC intervened. The agency pointed out in its short that in the Dodd-Frank Act, which was passed in response to the 2008 financial crisis, the agency has exclusive jurisdiction over commodity derivatives, including event contracts. The CFTC insists that the contracts are squarely in the regulatory mandate of the agency as part of its greater task of regulating financial markets.
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In a declaration, CFTC Chair Michael Selig labeled state-level attempts to control prediction markets as a power grab. He emphasized that event contracts are not gambling but a valid financial instrument that assists businesses and investors in handling event-related risks. According to the CFTC, these contracts, regardless of being founded on sports outcomes or some other events that could be measured, should be subject to regulation on the federal level to guarantee the stability of the market and the safety of the investors.
State Resistance and Growing Legal Challenges
This continued war demonstrates the state and federal conflict in policing new markets. Some states, such as Utah, have expressed their reservations on prediction markets and have compared them to gambling, and they need to be heavily regulated. In Utah, Governor Spencer Cox contended that these markets would damage families, particularly the youth, and needed to be banned in the state.
Nevertheless, several federal lawmakers defend the position of the CFTC, saying that there are no clear and consistent regulations that the expanded and innovative prediction markets should have. Republican Senator Bill Hagerty declared his support, saying that federal regulation would give assurance to such markets to thrive.
With sites such as Kalshi and Polymarket gaining more and more traction, in the run-up to the 2024 elections (or any other large-scale event) in particular, the question of who ought to oversee prediction markets is a central contention point. By stating that it will protect its jurisdiction, the CFTC has indicated that the future of these fast-growing markets and regulation will be the subject of a long-term legal and regulatory fight.
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