US Lawmakers and States Clash Over Prediction Market Regulation

A regulatory conflict has escalated between US states and federal authorities over prediction markets, which handled an estimated $44 billion to $64 billion in bets last year. Kalshi and Polymarket face intense scrutiny, with 11 states initiating actions. Nevada implemented a 14-day ban on Kalshi, and Arizona filed criminal charges alleging the firm ran an illegal gambling operation. Illinois has issued cease-and-desist orders against several platforms to protect state tax revenue.

In response to the volatility, Senators Adam Schiff and John Curtis introduced the Prediction Markets Are Gambling Act to ban sports-related contracts and return regulatory authority to the states. Separate legislation aims to prohibit federal officials, including the president and members of Congress, from participating in political markets to prevent insider trading. These concerns were heightened by reports that insiders profited over $1 million by betting on a US strike on Iran shortly before it occurred.

To mitigate criticism, Kalshi and Polymarket implemented new restrictions blocking politicians and athletes from trading on their own events. However, Representative Alexandria Ocasio-Cortez dismissed these measures as a "fig leaf to deflect from criticism." Simultaneously, the United States Commodity Futures Trading Commission has asserted exclusive federal jurisdiction, classifying event contracts as financial derivatives rather than gambling. CFTC Chair Michael Selig has challenged state regulatory efforts in court, signaling a legal battle that may reach the U.S. Supreme Court.