Prediction Markets vs. Regulators: Who Closes Out the Contract?
In the battle of the prediction markets vs. the regulators, it’s hard to gauge whether you should be betting on a 'Yes' or a 'No' for overall supremacy in the United States.
We look at the battle lines being drawn in 2026 by prediction market platforms, federal regulators, and the states themselves.
The states vs. prediction markets
Prediction markets have been around for a few years, but entered public consciousness in 2024 during Donald Trump’s run for the White House.
Rather than accepting fixed-odds bets on whether Trump would win, sites like Polymarket allowed customers to bet on the outcome (Yes) or against it (No). Prices changed with the weight of money, and players could swap positions to lock in a profit.
The major prediction markets use blockchain technology for transparency and accept cryptocurrency as the primary funding method for bets. Those factors, plus the fact that they don’t pay state taxes, have enraged markets like New Jersey, which has regulated sports betting.
CFTC and prediction platforms take the fight to the states
The CFTC (Commodities Futures Trading Commission) has had a busy month. This month alone, it has launched suits against state regulators trying to muscle in.
In April, the commission sued Illinois, Connecticut, and Arizona over the states’ attempts to self-regulate the predictions industry.
In a terse press statement, the CFTC attacked the state regulators for trying to “outlaw, regulate, and otherwise restrain” prediction sites before launching a lawsuit against Wisconsin in the latest prediction markets battle.
Leading predictions platform Kalshi is among those to receive cease-and-desist letters from the states themselves. However, Kalshi, which offers contracts on everything from the next Super Bowl winner to the timing of the next U.S ceasefire, is fighting back.
Kalshi recently secured an appeals court win over regulators in New Jersey after it was issued a cease-and-desist letter last year. A two-thirds majority of judges presiding over the case sided with Kalshi — predictions are financial contracts, not sports betting. Expect more appeals to be heard in the months and years ahead.
Appeals panel ruling could spell trouble for prediction markets
Key to prediction markets’ future is how the Ninth Circuit Federal Court rules on the sites’ business model. The court is due to rule on whether the contracts offered by Polymarket and Kalshi constitute sports betting or “swaps”.
Prediction market sites are covered by the Commodity Exchange Act if the court backs the "swaps" argument. They would therefore constitute financial trading platforms, not sportsbooks. That flies in the face of everything states like NJ and NV have been arguing thus far.
Should the court decide that predictions constitute gambling, it would allow states with legalized sports betting to regulate and tax it.
Over 20 U.S. states are embroiled in battles with federally regulated prediction markets. Bill Miller, president and CEO of the American Gaming Association, has also been critical of the CFTC and prediction markets. It’s possible that only the Supreme Court can make the ultimate decision on who controls what.
All eyes will now be on whether a Supreme Court ruling can bring clarity to the fight once and for all.
