Regulatory Struggles for Prediction Markets
In a significant step in the ongoing regulatory struggle for prediction markets, a federal judge in Nevada has dismissed Crypto.com’s request for relief against the state’s Gaming Control Board. This ruling, made by Judge Andrew Gordon last Thursday, marks a potential shift in the legal landscape for such platforms in the U.S.
Background of the Case
Crypto.com had previously taken preemptive measures, filing a lawsuit in June aimed at preventing state regulators from imposing their regulations on the company and restricting access to its prediction markets for Nevada residents.
Crypto.com contended that, like Kalshi, the current frontrunner in this market, it was shielded from state intervention by exclusive oversight from the Commodity Futures Trading Commission (CFTC). However, unlike Kalshi, which had secured a favorable injunction earlier this year from the same judge, Crypto.com’s efforts were denied.
A member of the Nevada Gaming Control Board remarked during a recent meeting that the decision signifies a turning point, saying, “the gig is up,” as reported by the Las Vegas Review-Journal.
Legal Perspectives
Legal experts, however, suggest that the battle is not yet over. Aaron Brogan, a cryptocurrency attorney and founder of Brogan Law, expressed skepticism about the ruling’s longevity, predicting it would falter on appeal. The complete transcript of the hearing and the ruling will not be available until January. However, limited details have emerged, including screenshots shared by sports legal analyst Dan Wallach, indicating that Judge Gordon’s reasoning revolved around the categorization of Crypto.com’s sports contracts—viewed as based on the outcomes of events, rather than the occurrence or non-occurrence of events—which disqualifies them from the ‘swaps’ categorization under the CEA (Commodity Exchange Act).
The CEA is essential federal legislation that outlines the CFTC’s authority over futures, options, and swaps. Since prediction market contracts do not fall into the categories of futures or options, those in the industry have argued for their classification as swaps. Brogan criticized the court’s reasoning as fanciful, suggesting there has been no substantial legal argument presented to support the distinction made by the judge.
Implications of the Ruling
The judge’s refusal to grant the injunction is particularly striking, given Kalshi’s earlier legal win in the same jurisdiction. It raises questions about the judge’s consistency in ruling or whether he found important legal distinctions between the two cases.
This year has seen considerable growth for prediction markets, with combined trading on platforms like Kalshi, Polymarket, Limitless, and Myriad nearing $1.5 billion recently—a figure that approaches the volume achieved during election cycles. Kalshi holds the distinction of being the first fully regulated prediction market to operate in the U.S., succeeding in its regulatory discussions after the CFTC withdrew its opposition. Polymarket is also on the cusp of launching its U.S. operations.
Future Outlook
Despite the recent setbacks, projections for prediction markets are optimistic with one report forecasting a market valuation of $95.5 billion by 2035, driven by a robust annual growth rate of nearly 46.8%. However, many state regulators, including those from Maryland, New Jersey, and Nevada, are actively opposing these markets in court, complicating the industry’s landscape.
In a unique position within this evolving field, Crypto.com recently obtained a full suite of licenses from the CFTC that includes a designated contract market (DCM) license—its most recent acquisition through the North American Derivatives Exchange. Historically, the company has held a DCM license since 2004 and has partnered with Underdog Sports to roll out sports prediction markets via the Underdog app, which is accessible across much of the U.S. and most Canadian provinces except Ontario.
As this story unfolds and gains further clarity, Crypto.com has yet to provide any official comment regarding the ruling or its next steps in the regulatory battle.
