Warning of an imminent "explosion in election gambling," the U.S. Commodity Futures Trading Commission asked an appeals court to extend the pause on Kalshi's political prediction markets for as long as the agency's appeal is pending.

"The district court’s order has been construed by Kalshi and others as open season for election gambling," the CFTC said in a filing Saturday, referring to a judge's Sept. 6 decision that the regulator shouldn't have stopped the company from offering contracts on which party will control each house of Congress.

In the wake of that decision, the agency noted, Wall Street heavyweight Interactive Brokers announced it would offer contracts on the presidential election through a CFTC-regulated subsidiary.

Unless the U.S. Appeals Court for the District of Columbia extends the pause on Kalshi's contracts for the appeal's duration, other CFTC-regulated exchanges will follow suit, the agency said. "An explosion in election gambling on U.S. futures exchanges will harm the public interest." The harms include market manipulation and "damage to electoral integrity," the CFTC reiterated.

Industry repercussions

Separately, the CFTC has proposed to ban election contracts at all exchanges on its watch. Several legal experts said the district court's opinion could torpedo that proposal.

Read more | U.S. Political Prediction Markets: Why Kalshi's Court Victory Matters

The district court's opinion also has potential ramifications for cryptocurrency businesses. The opinion relied on the Supreme Court's Loper Bright ruling, which curtailed regulators' power to interpret their statutory authority, shifting such power to the courts.

"It’s likely that federal agencies will continue to see their authority curtailed as a result of the Lopper Bright ruling and in the absence of new, clearer legislation from Congress," wrote Alex Thorn, head of firmwide research at crypto investment bank Galaxy Digital, in a research note Friday. "This could have wide implications for the crypto industry."

A long-running fight

Kalshi filed to list election markets last year. The CFTC blocked it. The company sued and won last week. The CFTC filed for an emergency stay blocking Kalshi from immediately listing its contracts, but lost that fight too. The contracts went live Thursday, before being temporarily suspended by the D.C. Appeals Court while it considers the emergency stay.

Such a stay would cause "irreparable harm" to Kalshi, the company contended in a Friday filing.

Read more: Even Temporarily Blocking Election Contracts Risks 'Irreparable' Harm, Kalshi Argues

The CFTC's latest filing calls that claim "deeply misleading" and said any financial losses suffered by Kalshi "pale compared to the harm that would flow from allowing election gambling on U.S. futures markets."

Kalshi offers hundreds of other event contracts, the agency noted, and "[i]f it prevails on appeal, it can list election contracts into the foreseeable future and make up its losses."

Besides, Kalshi should seen this fight coming, the CFTC said. "Kalshi's sunk costs are not attributable to a stay, they are attributable to Kalshi’s decision to spend big on election gambling, knowing that the Commission disapproved such contracts in the past."

Ask permission or beg forgiveness?

Kalshi, which does business only in the U.S., in dollars, has complained that while it was locked out of this year's election betting action, Polymarket, a crypto-based competitor, logged massive trading volumes.

"We are the ones who were trying to comply with the law, and the beneficiaries of the delay are the actors who don't want to comply with the law," Yaakov Roth of Jones Day, Kalshi's lead attorney, said at a hearing Thursday.

In Saturday's filing, the CFTC called that argument "sophomoric."

"A pharmacy does not get to dispense cocaine just because it is sold on the black market," the agency said.