The U.S. Commodity Futures Trading Commission (CFTC) this week voluntarily withdrew its appeal against the Kalshi exchange, marking an official end to its policy of cracking down on election betting. This move not only represents a significant shift in regulatory attitudes but also signals the gradual legalization and institutionalization of prediction markets in the United States.
CFTC announces withdrawal, Kalshi case may become a watershed
The CFTC submitted a motion for voluntary dismissal to the U.S. Court of Appeals for the District of Columbia Circuit, ending a legal dispute with the Kalshi exchange that lasted over a year. Kalshi is a prediction market platform based in New York, influential in sports and election contract trading.
According to the motion, Kalshi agreed to drop all claims and legal claims related to this case. Platform CEO Tarek Mansour celebrated this progress on the X platform: "Election markets will continue to exist. For decades, prediction markets have been banned and marginalized. This victory consolidates their right to survive and develop."
The case began in June 2023 when Kalshi submitted a self-certification application for election contracts, which was rejected by the CFTC in September of the same year, sparking a fierce battle in federal court. Until last October, the circuit court ruled that the CFTC's reasons for the ban were invalid, and Kalshi won a preliminary victory. Initially, the CFTC indicated it would continue to appeal, but chose to back down in the current political context.
Regulatory attitude shift, "Trump effect" begins to emerge
It is noteworthy that since Donald Trump took office again as president in January 2025, the CFTC's regulatory strategy has shifted significantly. Just a week before his inauguration, his eldest son, Donald Trump Jr., announced joining Kalshi as an advisor and praised the platform on social media for "predicting our win earlier than fake news."
Subsequently, Trump nominated Kalshi board member and former CFTC commissioner Brian Quintenz as the new CFTC chairman on February 12. Quintenz has repeatedly publicly supported legal prediction markets during his tenure. This personnel arrangement is widely interpreted as the new government's intention to pave the way for the legalization of election betting.
"Gambling" definition ambiguous, CFTC's regulatory status sparks discussion
For a long time, the CFTC has taken a conservative stance on election contracts, considering them "illegal gambling." However, prediction market platforms like Kalshi emphasize that users engage in economic hedging and information gaming by buying and selling event outcome contracts, serving a function similar to traditional futures trading.
Industry analysts point out that the CFTC may evolve into a de facto national gambling regulatory agency. Some experts express concern about this transformation, believing that the CFTC lacks the manpower and budget to support it. The budget request for fiscal year 2025 is $399 million, planning for 725 employees, while a standard sports betting regulatory agency is expected to need 1,000 to 2,000 employees.
Controversy continues: Sports betting sparks greater regulatory debate
Although election contracts are gradually being approved, the expansion of platforms like Kalshi into the sports betting field has attracted greater attention. The CFTC originally planned to hold a roundtable on sports contracts on April 30, but it was canceled at the last minute without explanation of whether it will be rescheduled. Meanwhile, several states have issued bans on these markets, declaring them illegal gambling. Kalshi has filed lawsuits in Nevada, New Jersey, and Maryland, winning preliminary injunctions in the first two states.
The CFTC has not yet taken a clear stance on sports contracts, but the withdrawal, cancellation of the roundtable, and Quintenz's appointment seem to suggest that the regulatory agency's attitude towards the entire prediction market has significantly softened.
Institutional turmoil: CFTC itself also caught in a trust crisis
On the same day it announced the withdrawal, the CFTC issued a brief statement revealing that some staff members had been placed on administrative leave due to alleged violations of law, government ethics, and professional standards. The investigation is ongoing, and the commission promises to disclose the results in due course.
Gambling lawyer Andrew Kim commented on LinkedIn that the current strategy change of the CFTC actually stems from its internal strategic reassessment: "The current CFTC may not necessarily want to win this case, because if it wins, the previous regulatory logic will be established, which would limit the development of new directions."
Conclusion:
The CFTC's withdrawal not only ends a year-long tug-of-war with Kalshi but also symbolizes a policy shift in the United States on the legalization of election betting. Driven by regulatory policy, political personnel, and market realities, prediction markets are moving from the margins to the mainstream. And the role of the CFTC is now at the crossroads between traditional financial regulation and gambling compliance, with the next few steps determining the direction of the entire industry's development.
