CFTC Warns of Imminent Explosion in Election Gambling

The U.S. Commodity Futures Trading Commission (CFTC) has issued a stark warning about an impending surge in election gambling. The agency has asked an appeals court to extend the pause on Kalshi's political prediction markets while its appeal is pending, citing potential harm to public interest and electoral integrity.

Key Takeaways

• CFTC warns of an imminent surge in election gambling.

• The agency seeks to extend the pause on Kalshi's political prediction markets.

• Concerns include market manipulation and damage to electoral integrity.

• The CFTC has proposed banning election contracts on all exchanges under its jurisdiction.

• The district court's opinion could have significant implications for the cryptocurrency industry.

Background

The CFTC's warning comes in the wake of a district court decision on September 6, which ruled that the regulator should not have stopped Kalshi from offering contracts on which party will control each house of Congress. This decision has been interpreted by Kalshi and others as a green light for election gambling.

Following the court's decision, Interactive Brokers, a major Wall Street firm, announced it would offer contracts on the presidential election through a CFTC-regulated subsidiary. The CFTC argues that unless the U.S. Appeals Court for the District of Columbia extends the pause on Kalshi's contracts, other CFTC-regulated exchanges will follow suit, leading to an explosion in election gambling.

Industry Repercussions

The CFTC has also proposed banning election contracts on all exchanges under its watch. Legal experts suggest that the district court's opinion could undermine this proposal. The opinion relies on the Supreme Court's Loper Bright ruling, which limits regulators' power to interpret their statutory authority, shifting such power to the courts. This could have wide-ranging implications for the cryptocurrency industry.

The Ongoing Battle

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

Kalshi argues that a stay would cause "irreparable harm" to the company. However, the CFTC contends that any financial losses suffered by Kalshi are minor compared to the potential harm of allowing election gambling on U.S. futures markets. The agency also noted that Kalshi offers hundreds of other event contracts and could list election contracts in the future if it prevails on appeal.

Compliance and Competition

Kalshi, which operates only in the U.S. and 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. Kalshi's lead attorney argued that the company was trying to comply with the law, while the delay benefited actors who do not want to comply with the law. The CFTC dismissed this argument as "sophomoric," comparing it to a pharmacy dispensing cocaine just because it is sold on the black market.

Conclusion

The CFTC's warning and legal actions highlight the complexities and potential risks associated with election gambling. As the appeals court deliberates, the future of political prediction markets and their regulation remains uncertain.

Sources

• 'An Explosion of Election Gambling' Is Nigh, CFTC Warns Appeals Court, CoinDesk.

• CFTC попереджає Апеляційний суд: "Вибух азартних ігор на виборах" близько, CoinDesk.

• «Взрыв ставки на выборах» близок, CFTC предупреждает апелляционный суд, CoinDesk.

• « Une explosion des paris électoraux » est imminente, prévient la CFTC devant la Cour d'appel, CoinDesk.

• Un'esplosione di scommesse elettorali" è vicina, avverte la CFTC alla Corte d'appello, CoinDesk.