Will Kalshi and Crypto.com Survive?
The Commodity Futures Trading Commission (CFTC) has launched an investigation into sports-related prediction markets on Crypto.com and Kalshi, focusing on whether these contracts should be classified as “gaming” under the Commodities Exchange Act. This probe, first reported by Bloomberg, could impact how sports betting and event-based contracts are regulated in the future.
The Big Question: Is Sports Betting “Gaming”?
The key issue in this investigation is whether sports prediction markets fall under the definition of “gaming.” According to crypto lawyer Aaron Brogan, if sports betting is not legally considered gaming, the CFTC might not have the authority to ban Crypto.com and Kalshi from offering such contracts. However, past legal discussions suggest that sports betting was included in the law’s restricted categories.
Brogan referenced a past ruling on Kalshi’s election betting contracts, where a judge defined gaming as “playing games for stakes.” He noted that while this ruling could pose challenges for Kalshi’s sports contracts, it is not legally binding. The interpretation remains debatable, and different judges could view the matter differently.
Changing Leadership Could Influence Regulations
The regulatory scene may change with Republican Caroline Pham leading the CFTC. Many believe her leadership could bring a more relaxed approach, especially toward retail-oriented event contracts. The previous Democratic-led commission had been skeptical of such contracts and actively fought against platforms like PredictIt and Kalshi offering election-based bets.
However, the extent of this policy shift remains uncertain. If the CFTC is still investigating Kalshi’s post-inauguration sports contracts, it suggests that the agency may continue to take a strict stance on certain event-based markets.
Kalshi had previously withdrawn two sports-related filings but later self-certified a new contract focused on spectator sports. On January 24, it launched a Super Bowl market for the “Kansas City vs. Philadelphia” game, which has already seen $2.5 million in trading. Plus, it introduced contracts on brands expected to advertise during the game, attracting over $1.5 million in activity.
What’s Next for Crypto Betting?
If the CFTC classifies sports contracts as gaming, platforms like Kalshi and Crypto.com could face regulatory problems or outright bans on their prediction markets. On the other hand, if courts lean toward a broader interpretation, these platforms may have a strong case to continue operating.
Any decision regarding their legality will only be made after the Super Bowl on February 9. For now, the future of sports-based prediction markets hangs in the balance as regulators and legal experts debate whether these contracts should be allowed under U.S. law.
