In a scathing rebuke of the Commodity Futures Trading Commission’s (CFTC) attempt to block election betting, prediction market provider Kalshi has argued in a new court filing that only Congress possesses the power to ban such markets. The ongoing legal battle between Kalshi and the CFTC has reached a critical juncture, with the startup asserting that the regulator overstepped its statutory authority and violated the Administrative Procedure Act (APA) when it sought to prohibit Kalshi’s election-related prediction contracts.
Kalshi’s Defense: CFTC’s “Goldilocks” Definition of Gaming
In its most recent court filing, Kalshi lambasted the CFTC’s attempt to craft a definition of “gaming” that would include elections as an “arbitrary, outcome-oriented carve-out with no basis in the law.” The startup contends that the regulator’s interpretation of the Commodity Exchange Act (CEA) is far too broad, and that the CFTC has no legal grounds to single out election betting as a prohibited activity.
The Battle Continues: Kalshi’s Ongoing Fight
The legal showdown between Kalshi and the CFTC began in September 2021, when the regulator sought to prevent the prediction market from listing certain event contracts that allowed traders to wager on which political party would control the House or Senate after the November elections. The CFTC argued that Kalshi’s proposed contracts involved “gaming” and “activities that are unlawful under state or federal law,” rendering them “contrary to the public interest.”
Kalshi promptly sued the CFTC in the District of Columbia, alleging that the agency had exceeded its statutory authority and violated the APA. In a significant victory for the startup, District Judge Jia Cobb sided with Kalshi, granting summary judgment and rejecting the CFTC’s interpretation of the CEA as “far too expansive.”
The Appeal: CFTC’s Continued Push to Block Election Betting
Undeterred by the district court’s ruling, the CFTC sought to have Judge Cobb’s order stayed pending appeal. When Cobb denied this request, the regulator turned to a U.S. federal appeals court, asking for an emergency motion to temporarily block Kalshi’s election-related contracts. In a unanimous decision, the appeals court rejected the CFTC’s motion, arguing that the regulator had provided “no concrete basis” to conclude that the election contracts could harm the public interest.
The CFTC has now officially appealed Judge Cobb’s decision, seeking to expand the definition of gambling to include “political contests.” If successful, this move would effectively ban election betting. In response, Kalshi’s Friday filing reiterated its arguments presented to the lower court, urging the appeals court to affirm Cobb’s decision.
“In short, the Commission’s decision to ban Kalshi’s contracts exceeds its statutory authority. Congress is free to add ‘elections’ to the list of enumerated activities in the Commodity Exchange Act, and thereby empower the CFTC to ban election prediction markets. But Congress has not done so. This Court should therefore affirm the district court’s judgment.”
– Kalshi’s legal team in their court filing
The Road Ahead: Implications for Prediction Markets and Crypto
The outcome of this legal battle could have significant implications for the future of prediction markets and, by extension, the cryptocurrency industry. Many prediction markets, such as Augur and Polymarket, rely on blockchain technology and cryptocurrencies to facilitate their operations. A ruling in favor of the CFTC could set a precedent for increased regulatory scrutiny and potential bans on certain types of prediction markets.
Moreover, the case highlights the ongoing debate surrounding the scope of regulatory authority in the rapidly evolving world of decentralized finance (DeFi) and blockchain-based applications. As these technologies continue to challenge traditional financial systems and regulatory frameworks, disputes like the one between Kalshi and the CFTC are likely to become more common.
The crypto community will be watching this case closely, as its resolution could provide valuable insights into how regulators may approach similar issues in the future. A victory for Kalshi would be seen as a positive development for the industry, reaffirming the importance of clear statutory authority and the role of Congress in determining the legality of emerging financial products and services.
As the legal battle unfolds, market participants and observers alike will be eagerly awaiting the CFTC’s response to Kalshi’s latest filing, which is expected by December 6. The outcome of this case could mark a pivotal moment in the ongoing struggle to define the boundaries of regulatory power in an increasingly digital and decentralized financial landscape.
