CFTC investigates whether sports prediction markets should be classified as "gaming," influencing future regulations - IcoHolder.
The Commodity Futures Trading Commission (CFTC) has launched an investigation into sports-related prediction markets on Crypto.com and Kalshi, examining whether these contracts should be classified as “gaming” under the Commodities Exchange Act. This inquiry, initially reported by Bloomberg, could significantly influence the future regulation of sports betting and event-based prediction markets in the U.S.
At the heart of the investigation lies the question of whether sports prediction markets fall under the definition of "gaming." Crypto lawyer Aaron Brogan noted that if sports betting is not legally defined as gaming, the CFTC may lack the authority to ban platforms like Crypto.com and Kalshi from offering such contracts. However, historical legal precedents suggest that sports betting has been considered part of restricted categories under the law.
Brogan pointed to a previous court ruling on Kalshi’s election betting contracts, where a judge defined gaming as "playing games for stakes." Although this ruling could present challenges for Kalshi’s sports contracts, it is not legally binding, and the issue remains open to interpretation. Different judges may have varying views on whether such markets should be considered gaming.
The leadership change at the CFTC, with Republican Caroline Pham now at the helm, could influence the direction of the investigation. Many believe Pham’s leadership may bring a more lenient stance on event-based contracts, especially those targeting retail traders. Under the previous Democratic-led commission, there was a more cautious approach, with regulators actively working against platforms like PredictIt and Kalshi offering election-based bets.
Despite this potential shift, the full extent of regulatory changes under Pham’s leadership remains uncertain. If the CFTC continues its investigation into Kalshi’s sports contracts post-inauguration, it suggests the agency may maintain a strict regulatory stance on some types of event-based markets.
Kalshi has been navigating these regulatory waters carefully. The platform had previously withdrawn two sports-related filings but later self-certified a new contract focused on spectator sports. On January 24, Kalshi launched a Super Bowl market for the "Kansas City vs. Philadelphia" game, which has already seen impressive trading volume of $2.5 million. In addition, Kalshi introduced contracts related to brands expected to advertise during the game, which has garnered over $1.5 million in activity.
Should the CFTC classify sports prediction contracts as gaming, platforms like Kalshi and Crypto.com may face regulatory hurdles or even a ban on such markets. Conversely, if the courts lean toward a broader interpretation, these platforms could argue that they are operating within legal boundaries and continue offering their services.
Ultimately, the fate of sports-based prediction markets will likely remain uncertain until after the Super Bowl on February 9. For now, the debate continues over whether these contracts should be considered permissible under U.S. law, as regulators and legal experts weigh in on the future of crypto sports betting.
