CFTC Defends Kalshi: Prediction Markets Are Not Gambling

The CFTC argues Kalshi prediction markets are federal financial derivatives, not illegal gambling, in a major legal battle against individual state laws.

In a letter filed with the Sixth Circuit Court of Appeals, the regulator stated that Kalshi’s contracts represent financial derivatives under federal jurisdiction, rather than illegal sports betting under state laws.

This move marks one of the most aggressive attempts by the federal government to date to establish control over the rapidly expanding event contracts market.

CFTC Moves to Block State Intervention

The CFTC’s primary argument is that platforms like Kalshi function as federally regulated derivatives exchanges and fall entirely under the Commodity Exchange Act.

According to the regulator, states do not have the right to independently classify these products as illegal gambling, given that Kalshi already holds federal status as a Designated Contract Market.

CFTC Chairman Michael Selig warned that the agency will not tolerate “excessive interference” from individual states that could undermine federal control over prediction markets.

Legal Warfare Expands Beyond Ohio

In recent days, the CFTC has initiated or supported legal actions against several states attempting to restrict platforms in this sector.

In Wisconsin, the federal regulator is directly suing state authorities over their efforts to apply local laws against Kalshi and Polymarket.

In Arizona, the CFTC successfully blocked criminal actions against the platform temporarily, while in Kentucky, a class-action lawsuit was filed accusing Kalshi of operating as an unlicensed gambling operator.

New York also remains at the center of a separate federal battle regarding whether state regulators can limit prediction platforms.

Wall Street Eyes a New Derivatives Market

The financial industry is watching the case closely, as a potential victory for the CFTC could open the door for a national prediction market covering sports, economic data, and real-world events.

This would allow for broader institutional participation and even the use of leverage and margin trading on future events—activities that have previously existed in a gray area between finance and gambling.

Proponents of the sector argue that prediction platforms represent a new class of financial instruments rather than traditional bookmakers.

Congress Remains Divided

While the CFTC has clearly backed Kalshi, the political battle in Washington is only intensifying.

The Senate is already discussing new bills, including the so-called “DEATH BETS Act,” which would restrict or ban certain sensitive events.

Parallel to this, the CFTC is conducting its own process to determine which prediction markets might be considered “contrary to the public interest.”

This means that even if Kalshi prevails against the states, the industry could still face new federal restrictions. For now, however, the CFTC’s intervention serves as the strongest signal yet that Washington is beginning to view these platforms as part of the formal financial system rather than mere online gambling.