In Historic Ruling, US Prediction Market Kalshi Scores Huge Win Against CFTC

Late on Friday, a judge ruled in favor of the US-based predictions market Kalshi, overruling the CFTC, and allowing the platform to offer derivatives for betting on the upcoming US election in November, legally and without the use of shady circumvention devices such as VPNs.

The ruling has potentially monumental consequences, as last year US commodity regulator CFTC forbade Kalshi from listing the Congressional control contracts, on the grounds that they would amount to unlawful gaming and would be "contrary to the public interest." Kalshi then sued, calling the regulator's decision "arbitrary [and] capricious."

Fast forward to Friday, when in a ruling handed by Judge Jia M. Cobb, of the U.S. District Court of the District of Columbia, she sided with Kalshi: "For the reasons stated in the Court’s forthcoming memorandum opinion, the Court GRANTS Plaintiff’s motion for summary judgment ... and DENIES Defendant’s cross motion for summary judgment," Cobb wrote.

"Defendant’s September 22, 2023 order prohibiting Plaintiff from listing its congressional control contracts for trading is hereby VACATED."

In response, the delighted Kalshi CEO, Tarek Mansour, said that "election markets are now legal in the United States for the first time in 100 years.

Variant Fund chief legal officer Jake Chervinsky stated in a Sept. 7 X post that it was a “HUGE win” for Kalshi, but he would like to see the judicial opinion first.

“I want to see the opinion before I start dancing on the grave of the administrative state, but this is even more evidence that the best way to deal with regulatory overreach is to FILE MORE LAWSUITS,” Chervinsky added.

Nick Tomaino, founder of the crypto fund 1confirmation, expressed that this is “great news for anyone who believes that having skin in the game is a fundamental aspect of being American.” Still, it may not be quite over yet as the CFTC weighs a proposed rule to bar any of the entities it regulates from offering contracts on political contests, in part over concerns they would undermine the integrity of elections.

Meanwhile, on March 18, Kalshi launched prediction contracts for its clients, enabling bets on Bitcoin and Ether price movements. Other contracts include a prediction on how high Bitcoin will reach in 2024 and one on the daily BTC price.

In more recent news, on Aug. 8, crypto exchange Gemini urged the CFTC to withdraw a proposed regulation that, if passed, would ban all event contracts on decentralized prediction markets.

“The CFTC should withdraw its Proposed Rule on event contracts, which would categorically ban all event contracts in the U.S., like those traded on Polymarket, the world’s largest prediction market,” Gemini co-founder Cameron Winklevoss wrote.

This year's prediction market breakout success, Polymarket, runs on crypto rails and is riding high on excitement about election betting. In August, the site logged over $470 million in volume, a record, according to Dune Analytics data; the lion's share of that was traded on election contracts. It is unclear, however, how many of its clients are US-based and whether that represents a violation of its own Jan 2022 CFTC settlement, which forbade the company from operating in the US.

Effectively, the Friday ruling makes Kalshi the only legitimate and legal online betting market available to US residents and citizens.

More broadly, the ruling represents a victory for advocates of prediction markets, in which traders bet on the outcomes of real-world events ranging from elections to album sales to temperature increases. Prediction markets are popular in crypto circles, and although Kalshi does not use cryptocurrency, the crypto industry has been watching the case closely; VC firm Paradigm filed a friend-of-the-court brief supporting the plaintiff.