States Are Moving Fast to Fight Prediction Markets, and It Could Mean Game Over for Kalshi and Polymarket |
States Are Moving Fast to Fight Prediction Markets, and It Could Mean Game Over for Kalshi and Polymarket
Billions are at stake for the Kalshis of the world.
BY MELISSA ANGELL, SENIOR WRITER @MELISSKAWRITES
Commodity Futures Trading Commission chair Michael Selig. Illustration: Inc.; Photo: Getty Images
The latest battle between the states and the federal government is over prediction markets after the Trump administration came out in favor of them this week.
Commodity Futures Trading Commission chairman Michael Selig on Tuesday asserted in a legal brief that the CFTC is defending its “exclusive jurisdiction over these derivative markets.” His comments are in response to a slew of lawsuits filed by states, those which claim that prediction markets like Kalshi are bypassing state regulations and licenses to operate, in essence, like an unregulated casino.
But Selig went one step further on Tuesday, asserting that prediction markets “provide useful functions for society,” while doubling down that prediction market offerings, namely event contracts, are considered commodity derivatives.
“Prediction markets aren’t new,” Selig said in a Tuesday video posted on X. “The CFTC has regulated these markets for over two decades. They provide useful functions for society by allowing everyday Americans to hedge commercial risks like increases in temperature and energy price spikes.”
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It’s true that the CFTC has overseen derivative markets for the past half-century since its creation in 1974. Derivatives are sophisticated financial instruments, drawing their value from an underlying asset (think stocks, bonds, commodities, and so on). They’re considered highly risky, in part because investors can control larger financial positions compared with their initial investment.
Kalshi and other prediction platforms extend the ability to bet on everything from who might win this season of Survivor to where the price of bitcoin might fall on a specific day.
But the question here is if prediction markets resemble derivative markets or, as state regulators have argued, if they more appropriately fall into the realm of gambling and sports betting. Recent analysis from the Financial Times shows that roughly 90 percent of Kalshi’s annualized revenue is derived from sports trading.