The U.S. Commodity Futures Trading Commission (CFTC) has stepped up a gear in its legal battle with the state of Nevada in a bid to consolidate its control over prediction markets. Authority Chairman Michael Selig argued in an opinion filed with the Ninth Circuit Court of Appeals on Tuesday that these platforms should be governed by federal derivatives legislation, not state gambling laws. The federal authority, which intervened in the dispute between Crypto.com and Nevada, opened a front that resonated widely in the financial world, describing the states’ moves in this area as “usurpation of authority”.
Conflict of Power between the Federal Authority and the States
Crypto.com’s attempt to offer prediction contracts based on sports events was blocked by the state of Nevada, and the issue was taken to court. When the local court evaluated these contracts within the scope of gambling and subjected them to state laws, the CFTC stepped in, recalling the power it received from the Dodd-Frank Act. The institution claims that the “exclusive authority” given to it by Congress after the 2008 financial crisis covers not only simple binary options, but all derivative instruments that depend on the degree of occurrence of an event.
Chairman Michael Selig is speaking out harshly against criticism that prediction markets are no different than a casino. Emphasizing that these structures operate through a transparent clearinghouse and that investors can balance their positions whenever they want, Selig argues that contracts are critical financial tools to manage economic risks. According to federal authority, states’ attempts to rein in these markets with local betting rules directly threaten America’s global financial leadership and investor protection standards.
Prediction markets came to the top of the agenda, especially during the 2024 elections, with the huge volume captured by platforms such as Polyamarket and Kalshi. Previous efforts within the CFTC to ban bets on topics such as political events, war and terrorism during the Rostin Behnam period were shelved. This strategic step back demonstrates the agency’s desire to position prediction markets as legitimate financial derivatives markets under its control, rather than banning them altogether.
Prediction Markets on the Hot Agenda of Politics
On the Washington front, opinions are divided along very sharp lines. 21 people, led by Democratic Senators Catherine Cortez Masto and Adam Schiff, argue that the CFTC should not intervene in these cases, stating that these structures similar to sports betting violate the sovereign rights of the states. This wing expresses its concerns, claiming that the platforms in question do not generate public revenue and disable local consumer protection mechanisms.
On the other hand, figures such as Republican Senator Bill Hagerty support Selig’s move, believing that clear rules will encourage innovation. However, resistance continues at the state level; Utah Governor Spencer Cox has described prediction markets as “a form of gambling that destroys family life” and publicly declared that he would mobilize every constitutional resource to keep these structures out of his state. This arm wrestling, which is at the center of political and legal debates, seems to determine the future limits of financial technologies.
Member of the House of Representatives Ritchie Torres added a different ethical dimension to the issue and suggested that there be limits on elected officials’ transactions in these markets. High-stakes bets, especially on international crises or the fate of political figures, create the risk of “insider information leakage” and increase the pressure on regulators. The decision of the federal court will determine not only the relationship between Nevada and Crypto.com, but also by whose rules this new multi-billion dollar market will be played.
