US Court Clears Kalshi To List Election Betting Contracts

A federal appeals court has ruled that predictions market Kalshi can proceed with offering contracts that allow users to bet on election outcomes.

In a decision filed on Wednesday, U.S. Court of Appeals Judge Patricia Millett dissolved the administrative stay that had previously halted Kalshi’s plans, stating that the U.S. Commodity Futures Trading Commission (CFTC) failed to prove that the public would face “irreparable injury” without the stay.

Judge Millett also denied the CFTC’s motion for a stay “without prejudice,” meaning the agency could refile in the future. However, with U.S. elections just a month away, it remains unclear whether election-related contracts are currently live on Kalshi’s platform. Kalshi has not yet responded to inquiries regarding the ruling.

CFTC Chair Rostin Behnam was concerned over a rise in event contracts, including political betting, and argued that allowing such contracts would push the CFTC into areas outside its regulatory mandate. However, Judge Millett suggested that the CFTC could rely on other federal agencies for enforcement or refer potential violations to them.

The CFTC is also in the process of drafting rules that would ban bets on political events, following a vote in May.

Last year, the CFTC barred Kalshi from offering “congressional control contracts,” leading the platform to sue the agency in November 2023. Although Judge Cobb recently ruled in favor of Kalshi and dismissed the CFTC’s block, the agency quickly sought an emergency stay.

The CFTC has increasingly focused on event contracts, like those offered by Kalshi and Polymarket, which allow users to bet on various outcomes, including political events.

Kalshi had been locked out of the 2024 election betting market while the case was pending. Following the previous ruling, Kalshi announced on its website that “U.S. election markets are coming to Kalshi.”

Although Kalshi does not use cryptocurrency, the crypto industry has closely watched the case. The venture capital firm Paradigm even submitted a friend-of-the-court brief supporting Kalshi’s position.

The CFTC previously argued that offering such contracts would amount to unlawful gaming and could be against the public interest. However, Kalshi challenged this claim, calling the regulator’s decision “arbitrary and capricious.”

Kalshi also faces another battle as the CFTC considers a new rule that could ban regulated entities from offering contracts on political contests due to concerns over election integrity.

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 the proposed rule change that could ban political prediction markets.

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.

 

Financefeeds.com