The Commodities and Futures Trading Commission (CFTC) is moving to block Kalshi, a prediction market platform, over concerns about the risk of market manipulation and to protect its regulatory rights.
After losing the first-instance trial, the CFTC quickly appealed to the D.C. Court of Appeals on September 14, asking for a stay of District Court Judge Jia Cobb’s ruling. This forced Kalshi to delist the election prediction contracts after just eight hours, clearly reflecting the CFTC’s determination to maintain its position.
The CFTC argued that the financial losses Kalshi could incur were not sufficient to justify the potential risks that prediction markets pose, especially the potential for manipulation. The CFTC argued that election prediction contracts are essentially a form of gambling, and therefore have the right to regulate the activity.
Kalshi strongly disagreed, arguing that election prediction cannot be considered gambling because the election results have far-reaching economic and social implications. They warned that banning Kalshi would only push trading to unregulated platforms, posing a greater risk to the public.
Both the CFTC and Kalshi acknowledge the potential for manipulation in prediction markets. The CFTC cited Polymarket, which was the site of a manipulation attempt involving Vice President Kamala Harris, as an example. Kalshi also sees the potential but argues that banning it would allow unregulated platforms like Polymarket and PredictIt to continue operating unchecked.
Excerpt from the U.S. Court of Appeals handling CFTC v. Kalshi. Source: Courtlistener
The CFTC disagreed with Kalshi’s position, likening allowing Kalshi to operate to allowing a pharmacy to sell cocaine because “it’s already on the black market.” The agency stressed that election gambling threatens the integrity of the electoral process, and with or without oversight, it is unacceptable.
The CFTC v. Kalshi case is drawing a lot of attention from the public and experts, reflecting the heated debate over the regulation of prediction markets and their potential impact on major events such as elections. The outcome of the case will shape the future of prediction markets in the US, especially as the CFTC shows its determination to fully regulate the industry.