Prediction Markets Face Crypto-Style Crackdown as Kalshi Battles Regulators Nationwide

[Ben Graham]

A new regulatory storm is forming, and this time it’s not cryptocurrency, but prediction markets.

Just as digital assets once collided with the gray zone between commodities, securities, and gambling, the same fault lines are now opening beneath Kalshi, the federally regulated event-contract exchange backed by investors from Sequoia to Charles Schwab.

On Monday, the New York State Gaming Commission issued a cease-and-desist order, joining a growing list of states that are moving against Kalshi’s sports and event-based markets.

Within hours, the company filed suit in federal court, arguing that the Commodity Futures Trading Commission (CFTC), not state gambling boards, holds exclusive jurisdiction.

It’s the same playbook Kalshi has deployed in Nevada, New Jersey, Maryland, and Ohio, each time invoking federal pre-emption under the Commodity Exchange Act.

Kalshi = ultimate fight companion pic.twitter.com/5NDey6Pd1L

— Will Brackett (@willibeemin) October 25, 2025

Regulatory Turf Wars Return: Is a Prediction Contract a Regulated Derivative?

The legal question mirrors crypto’s early turf war: Is a prediction contract a regulated derivative, or just a bet by another name?

Arkansas’s attorney general answered decisively last week, declaring Kalshi’s event contracts “gambling under state law,” regardless of whether they’re labeled predictions.

Illinois, Pennsylvania, and Michigan regulators swiftly followed with warnings that offering or participating in such markets without a gaming license constitutes illegal gambling.

Kalshi’s defense rests on its Designated Contract Market (DCM) license, the same federal status that lets the Chicago Mercantile Exchange list futures.

It argues that CFTC oversight supersedes any state’s anti-wagering laws, and that event contracts from “Will inflation exceed 3% in Q4?” to “Will the New York Rangers reach the Stanley Cup Final?” are legitimate hedging instruments.

States disagree, framing them as unlicensed sports bets and citing long-standing prohibitions on gambling.

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While State Regulators Fight Prediction Markets Are Already a Golden Goose

how kalshi traders see the world pic.twitter.com/gbwFBE6wuz

— Kalshi Intern (@InternAtKalshi) October 22, 2025

The irony is that while regulators fight, prediction markets are already mainstreaming. Kalshi just recently struck a licensing deal with the NHL, allowing use of official league trademarks, the first such partnership between a US pro sports league and a prediction-market operator.

Volumes have surged since the NFL season began, boosted by a Robinhood integration that routes retail order flow directly into Kalshi’s markets.

DraftKings and FanDuel shares have declined by double digits since, reflecting investor concerns that a federally sanctioned rival could circumvent their state-based monopolies.

Behind the headlines is a deeper structural battle over federal supremacy versus state sovereignty. The CFTC, fresh from its hands-off stance on crypto futures in 2017, now finds itself at the center of another definitional clash: whether data-driven event trading constitutes a new asset class or merely gambling disguised as fintech.

States are signaling they won’t concede ground easily, warning that any sportsbook, operator, or broker touching event contracts may risk its gaming license.

For now, the market thrives in the legal vacuum. Kalshi has injunctions in some jurisdictions, pending appeals in others, and confidence that its federalumbrella will hold.

But the momentum of state pushback suggests a coming test case that could define the boundaries of financial innovation versus gambling law for the next decade, a replay of crypto’s own early regulatory wars, only this time fought over the future of information markets themselves.

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