The U.S. Commodity Futures Trading Commission, the watchdog of futures, swaps, and certain other standardized contracts, warned it had seen significant concerns over manipulation risks across prediction markets, with Kalshi – one of the leading, U.S.-based platforms of prediction markets – having caught its attention.
The latest filing for a prediction market further fuels concerns involving the integrity of Kalshi markets following some recent manipulative actions on similar platforms.
In a complaint dated 14 September, the CFTC outlined further its concerns by reminding the other cases of marketplace exploitation on other competing platforms. For example, there was on Polymarket manipulative action whose traders allegedly tried to sway contracts on Vice President Kamala Harris’s chances of winning the 2024 presidential election.
The other case involved PredictIt whereby a manufactured artificial opinion poll indicated that musician Kid Rock had an advantage in a senate race over Senator Debbie Stabenow contributed huge price movements in the re-election contract for Senator Debbie Stabenow.
Kalshi, a website through which users can make bets on numerous event outcomes-which includes elections-has also made quite a few enemies at the CFTC. Over the course of several litigation proceedings, on September 6, District Court Judge Jia Cobb partially granted a rule for Kalshi in order to continue and let a firm offer election-related betting.
However, on the same day, she finally heard the CFTC’s emergency motion that eventually resulted in a temporary suspension of Kalshi’s election markets on September 9.
But just when it seemed that would not be the issue, Kalshi conditionally launched its first U.S. election market on September 12, only to pull it after hours as an appeal court issued another stay order. This CFTC challenge brings into question whether Kalshi’s operations for election betting are, or should be, legal under the rubric of U.S. gaming rules and thus within the CFTC’s purview.
Judge Cobb’s September 12 ruling blasted the CFTC’s efforts to shut down Kalshi’s election markets as an overreach of regulatory authority. Kalshi countered that forcing a stay would cause immense financial damage to the company, while similar products remain on unregulated platforms. The CFTC dismissed such an argument as “sophomoric,” describing how a pharmacy selling unlawful drugs does nothing to prevent that same drug from being sold on the black market.
The core of the dispute here is whether Kalshi’s operations are covered under the United States laws on gambling and, by extension, fall within the CFTC’s mandates. More than just a problem for Kalshi, this case has broader implications for both the cryptocurrency and prediction market industries, with its decision potentially setting ongoing regulatory tones for how different digital platforms related to betting will be treated.
Relatedly, Bloomberg LP just released plans to incorporate election odds data from blockchain-based prediction market Polymarket into the company’s widely used Terminal. Polymarket runs on the Polygon network, having established itself so far based on its transparent on-chain data and smart contract-based trade execution in tracking the real-time actual event outcomes versus election odds.
