Tennessee Judge Blocks State Action Against Kalshi: Crypto Win?

[Ben Graham]

A federal judge just hit pause on Tennessee’s attempt to shut down Kalshi crypto prediction platform.

U.S. District Judge Aleta Trauger issued a preliminary injunction, telling state regulators to step back while the court fight plays out. For now, the platform stays live.

But this is bigger than one state.

At the center is a growing battle over prediction markets. Are they illegal gambling. Or are they regulated financial products. That answer could shape whether trading on sports and political outcomes becomes mainstream or gets pushed out by regulators.

Kalshi's losing streak vs. states (MD, MA & NV) comes to an end in Tennessee, as federal district judge grants Kalshi's motion for preliminary injunction vs. Tennessee. Court finds that sports contracts are "swaps." pic.twitter.com/gOiiRIb98z

— Daniel Wallach (@WALLACHLEGAL) February 20, 2026

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What The Ruling Means For Prediction Market Regulation

Platforms like Kalshi run prediction markets. Think less sportsbook, more event exchange. Instead of buying Apple stock, you buy a contract that pays if something happens, like a team winning or a candidate taking office.

Tennessee and other states see that and call it gambling. Money is on the line. The outcome is uncertain. In their view, that triggers state gaming laws.

Kalshi sees it differently. It argues these are financial contracts, regulated at the federal level by the CFTC.

A wave of new rulings and enforcement actions is intensifying the fight over prediction markets and sports event contracts, raising a core question for the industry: Are these products federally regulated derivatives under #CFTC jurisdiction or state‑regulated #gaming? This alert… pic.twitter.com/NDQaxXSH36

— Holland & Knight (@Holland_Knight) February 20, 2026

That is the core battle. If states win, platforms could face a patchwork of 50 different rulebooks or outright bans. If the federal side wins, prediction markets get treated like futures or options, and the entire industry levels up into mainstream finance.

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How The Court Ruled And What Happens Next

Judge Trauger handed the industry a real win.

She sided with the federal view, ruling that Kalshi looks more like a financial exchange than a gambling house. The court said the sports contracts are likely “swaps” under the Commodity Exchange Act. And since the CFTC has exclusive authority over swaps, Tennessee gambling laws probably do not apply.

That is why she blocked the state’s cease-and-desist order, allowing Kalshi to keep operating while the case continues.

Wild that we went from "prediction markets are just gambling" to the CFTC going to court to protect them.

Nearly 50 states are trying to shut Kalshi and Polymarket down.

The federal government is fighting back.

Meanwhile $6 billion in contracts are being traded every week.… pic.twitter.com/mTXlnsd02f

— JΞFFhttps://s.w.org/images/core/emoji/17.0.2/72x72/1f9f8.png (@JefferyCrypt) February 20, 2026

But this fight is far from over.

A court in Nevada recently ruled the opposite way, backing state regulators. So now there is a split. In one state, it looks legal. In another, not so much.

When courts disagree like this, it often ends up at the Supreme Court. That may be where a final nationwide answer gets decided.

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