A growing number of industry leaders across the crypto and fintech sectors, including companies like Gemini, Crypto.com, and Robinhood, as well as influential blogger Scott Alexander, have voiced strong opposition to a proposed rule change that could ban political prediction markets.
The proposed rule was proposed by the U.S. Commodity Futures Trading Commission (CFTC) and has garnered support from figures like Elizabeth Warren and other Democratic lawmakers. It seeks to clarify that certain “event contracts” related to political contests, awards, and athletic competitions would be prohibited from trading by CFTC-registered entities.
The lawmakers argue that such contracts could exacerbate existing issues in the U.S. political system, particularly as the 2024 election approaches.
In response, stakeholders in the crypto and fintech industries have pushed back, arguing that the rule change would deny Americans access to valuable markets and represents regulatory overreach.
Cameron Winklevoss, co-founder of Gemini, called for the CFTC to withdraw the proposed rule and engage with industry stakeholders to build trust. Steve Humenik, Senior Vice President at Crypto.com, also argued that the CFTC should not exceed its regulatory authority.
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Other voices opposing the rule include Robinhood, Dragonfly Capital, and Scott Alexander, who have all raised concerns about the CFTC’s jurisdiction and the potential impact of the proposed ban on the industry.
Coinbase Chief Legal Officer Paul Grewal also warned that the proposed rule could ban a wide range of prediction contracts, such as those involving Nobel Prizes or the Oscars, without clear reasoning.
Grewal noted that the broad definition of “gaming” in the proposal could have unintended negative effects on emerging markets regulated by the CFTC.
Coinbase and other crypto firms donated to the Commonwealth Unity Fund, a new super political action committee (PAC) established by attorney James Murphy. The donation seeks to unseat anti-crypto Senator Elizabeth Warren and support pro-crypto lawyer John Deaton.
In a detailed letter to the CFTC, Coinbase urged the agency to withdraw the proposal and collaborate with academics, industry leaders, and policymakers to develop a more balanced approach. Grewal criticized the proposal’s approach to evaluating contracts as exceeding the CFTC’s statutory authority and failing to recognize the public benefits of prediction markets.
The debate comes as event markets like Kalshi and Polymarket gain popularity, allowing users to bet on outcomes of future events, including U.S. elections. However, CFTC Chair Rostin Behnam voiced concerns that allowing such contracts could push the agency beyond its Congressional mandate.
The news also comes amidst Coinbase’s ongoing legal battle with the U.S. Securities and Exchange Commission (SEC), which also questions whether tokens sold on the exchange should be considered securities. It alleges that the largest U.S. cryptocurrency exchange has violated securities laws by facilitating the trading of at least 13 crypto tokens that should have been registered as securities.
