Tough times for prediction markets: Kalshi wins case against CFTC, still faces shutdown

Five senators and three members of the House of Representatives sent an open letter to Rostin Benham, the head of the CFTC. The politicians stated that such markets could undermine public confidence in the country’s electoral system.
Members of Congress noted that elections should not be perceived as a “commercial enterprise.” In their opinion, this negatively affects democratic processes in the United States. Therefore, the congressmen believe the CFTC is obliged to develop rules that eliminate this phenomenon.

What is known about Kalshi

The company that runs the platform went to court, and the regulator’s decision was called “capricious and arbitrary.”
In September 2023, the CFTC banned Kalshi from placing contracts in congressional elections. The regulator explained this by the fact that such bets are contrary to the public interest and are effectively illegal in some states.

What is the essence of the Kalshi-CFTC conflict?

According to its founders, Kalshi is the first CFTC-regulated exchange dedicated to direct trading of future event outcomes. The exchange allows investors to take yes or no positions on whether an event will occur through a new asset class called event contracts.
However, Polymarket‘s predictions are likely to be inaccurate. Nevertheless, the very fact of such large-scale investments in predicting the election outcome through cryptocurrency platforms demonstrates the growing influence of the crypto community on the perception of political processes and the willingness of its participants to take financial risks associated with political events.
On Sep. 6, U.S. District Judge Jia Cobb ruled in favor of Kalshi but did not provide a reason. She said she would publish it in writing later.

The CFTC’s response

The Commission is in the unenviable position of finding out that it has lost but without any explanation or reasoning. There can be no doubt that the issues presented in this case are serious legal questions. However, at this time, the CFTC cannot fully argue the likelihood of success in any forthcoming appeal, because the court has not yet issued its memorandum opinion.

Meanwhile, the Polymarket platform has seen bets on the 2024 presidential race exceed 0 million. According to the platform, entrepreneur Donald Trump is the leader. Users estimate his chances of winning at 52%, while 45% of people who placed a bet believe in Vice President Kamala Harris’ triumph. 6 million has been bet on Trump’s victory, while 1 million has been bet on Harris.

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On the day of the court’s decision, the regulator filed a motion to stay the order for 14 days after the judge’s opinion was published. The CFTC explained this by stating that the papers needed to be thoroughly reviewed for a possible future appeal. If this emergency motion is granted, the ban on contract placement will remain in effect until the end of September.

Ban on betting on U.S. elections

A U.S. District Court has ruled in favor of the Kalshi prediction market, effectively approving betting on the presidential election’s outcome.
However, in response, the regulator filed an emergency motion to make this decision. The company believes that this threatens the platform’s collapse.
Kalshi is a financial exchange that allows investors to trade assets based on the expected outcome of future events. Founded in 2019, Kalshi’s markets cover many areas, from economics and international relations to weather and the chance of spotting aliens. In 2021, the platform attracted a million investment in Series A funding led by Sequoia Capital.

What’s Happening with Election Bets

In August, several members of the U.S. Congress appealed to the CFTC with a request to ban betting on the outcome of the presidential election. In the letter, the politicians equated such activity with gambling.