How Prediction Markets and Crypto Giants Steamrolled the CFTC (And What Happens Next)
There’s a moment in every regulatory drama when the power flips.
For the U.S. Commodity Futures Trading Commission, the federal watchdog that once made crypto founders sweat through their hoodies, that moment arrived quietly, in a court filing on May 5, 2025. The CFTC voluntarily dismissed its own appeal against prediction market Kalshi, ending a two-year legal war that it had already lost. No dramatic press conference. No defiant statement. Just… a motion for voluntary dismissal, both sides paying their own legal costs.
Four months earlier, the CFTC’s Enforcement Division had filed 58 actions in a single year. In 2025? That number dwindled to 13, a 78% drop.Memos circulated inside the agency warning that “even modest efforts” to regulate prediction markets “could cost you your job.”
How did an agency built to police derivatives markets end up on the ropes, swinging at air, while a coalition of prediction markets, crypto exchanges, and trading apps walked away with the belt?
Grab a coffee. This story has more twists than a Polymarket contract on Fed rate hikes.
The Incredible Shrinking Enforcement Division
58 to 13: A Number That Tells the Whole Story
Let’s put the numbers side-by-side, because they’re almost absurd:
That’s not a gradual decline. That’s a cliff.
Multiple ongoing crypto investigations were closed without any claims being filed. Staff who survived the 2025 layoffs, yes, there were multiple rounds, reportedly got the message loud and clear: don’t rock the boat. One former CFTC insider told Barron’s that management “appears to be discouraging new crypto investigations.”
Now, I’m not here to do political commentary. But you can’t tell this story without acknowledging the calendar. The enforcement pullback accelerated sharply after the 2024 election and the change in administration. The new leadership, with acting Chair Caroline Pham at the helm, signaled a “simplified” approach to crypto regulation. Translation: fewer cases, more handshakes.
(Side note: If you’ve ever worked in a large organization, you know how fast the tone shifts when the person at the top changes. Imagine that, but with subpoena power.)
The Departure That Said Everything
Outgoing CFTC Commissioner Kristin Johnson didn’t leave quietly. In her farewell speech at the Brookings Institution in September 2025, she issued a stark warning: prediction markets are “promising to eclipse crypto markets in volumes of retail customers’ cash captured” while operating with “too few guardrails and too little visibility.”
She invoked the ghosts of 2022, Terra/Luna, Celsius, FTX, as proof that weak governance invites disaster. “We’ve seen this movie (or bankruptcy) before,” she said.
But here’s the thing about farewell speeches: they’re delivered by people walking out the door. The people staying inside? They were busy issuing no-action letters.
The Courtroom Blitz: How Kalshi Drew First Blood
The CFTC didn’t just wake up one morning and decide to stop enforcing. It got dragged to court and lost, badly.
The 2023 Gambit
Rewind to 2023. Kalshi, then a relatively obscure prediction market with a CFTC-issued Designated Contract Market (DCM) license, wanted to list contracts on which party would control Congress after the 2024 elections. The CFTC, under then-Chair Rostin Behnam, said no. The agency argued such contracts involved “unlawful gaming” and were “contrary to the public interest.”
Now, most startups in Kalshi’s position would have backed down. Regulators are scary. Litigation is expensive. The CFTC had a reputation for winning.
Kalshi sued.
In November 2023, it filed a complaint in D.C. federal court arguing the CFTC had overstepped its statutory authority. The core argument: the Commodity Exchange Act gives the CFTC power to block contracts only under narrow, specific conditions, and “we don’t like election betting” isn’t one of them.
September 2024: The Ruling That Changed Everything
In September 2024, U.S. District Judge Jia Cobb sided with Kalshi. The ruling was clear: the CFTC did not have the authority to block Kalshi’s election contracts based on a vague “public interest” standard. The court ordered the agency to vacate its denial.
The CFTC scrambled. It applied for an emergency 14-day stay, denied. It filed an appeal, recycling many of the same arguments. Oral arguments were held in January 2025.
And then something changed. Donald Trump returned to the White House. His eldest son, Don Jr., joined Kalshi as a strategic advisor on January 13. The CFTC’s general counsel who filed the appeal left the agency in April. And on May 5, 2025, the appeal was dropped.
I’m not saying those dots connect. I’m just saying they’re on the same page.
The Domino Effect
Kalshi’s win didn’t just open the door for election contracts. It sent a signal to every other prediction market and crypto firm watching from the sidelines: the CFTC can be beaten in court.
- PredictIt, the academic-focused prediction market that had been fighting CFTC efforts to shut it down since 2022, won its own federal court ruling in July 2025. The court called the CFTC’s actions “arbitrary and capricious.” Ouch.
- Polymarket, the blockchain-based giant that had operated in a regulatory gray zone, received a no-action letter from the CFTC in September 2025, effectively clearing it to resume U.S. operations after acquiring regulated exchange QCX for $112 million.
- By December 2025, the CFTC issued no-action letters to four prediction market operators, Polymarket, PredictIt, Gemini, and LedgerX, exempting them from certain swap data reporting and record-keeping requirements.
Think of a dam with one crack. Then two. Then the whole thing goes.
The Crypto Cavalry Arrives
At this point, the prediction markets had momentum. But to truly “steamroll” a federal agency, you need more than courtroom wins, you need political muscle.
The Coalition for Prediction Markets (CPM)
In December 2025, Kalshi and Crypto.com launched the Coalition for Prediction Markets, bringing in Coinbase, Robinhood, and sports gaming operator Underdog as founding members.
This wasn’t a casual industry group. This was a lobbying machine, explicitly formed to “defend federal regulation through the CFTC and resist state gaming regulators attempting to block their services.”
Kalshi CEO Tarek Mansour was blunt about the motivation: traditional gambling interests were “spreading misinformation about how prediction markets operate” and lobbying state officials to shut them down. The CPM was the industry’s answer, a coordinated counter-lobbying effort.
The numbers explain why everyone was so eager to join forces. Prediction markets had become a $150 billion-plus annual trading sector. Kalshi and Polymarket together processed nearly $10 billion in monthly volume. Kalshi raised a $1 billion Series E at an $11 billion valuation.
When that much money is on the table, you don’t just hire lawyers. You hire lobbyists. Lots of them.
Coinbase Sues Three States
And then Coinbase, the publicly traded crypto exchange with a market cap in the tens of billions, did something even more aggressive. In December 2025, it sued Connecticut, Illinois, and Michigan, asking federal courts to block those states from applying gambling laws to prediction markets.
Coinbase Chief Legal Officer Paul Grewal posted on X: “Prediction markets are fundamentally different from sportsbooks. Casinos win only if you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers.”
The lawsuits argued that prediction markets fall under the exclusive jurisdiction of the CFTC, not state gaming commissions. Coinbase wasn’t just defending itself. It was going on offense, seeking to establish federal preemption as a matter of law.
(Quick metaphor: Imagine if Uber, instead of fighting city-by-city taxi regulations, sued the cities. That’s the level of aggression we’re talking about here.)
The Counterpunch: States Push Back
But here’s where the steamroller metaphor hits a speed bump. States aren’t rolling over.
Nevada Says “Not So Fast”
In November 2025, a Nevada federal judge dropped a ruling that sent shockwaves through the prediction market world. Judge Andrew Gordon ruled that contracts based on sporting event outcomes are not swaps under the Commodity Exchange Act, meaning they don’t fall within the CFTC’s exclusive jurisdiction. State gambling laws could apply after all.
Gordon’s reasoning was pointed. If Kalshi’s view were adopted, he wrote, “there is a not-insignificant chance that the regulated entities in this state will abandon their current model and become DCMs, unleashing even more unregulated gambling and devastating the Nevada economy and related tax revenues.”
Translation: “You’re asking me to blow up my own state’s economy. No thanks.”
Maryland, Connecticut, and the Patchwork
Nevada wasn’t alone. At least 10 states issued cease-and-desist orders or filed complaints against prediction market platforms in 2025.Maryland gaming officials wrote that “the purchase of the contract is indistinguishable from the act of placing a sports wager.”Connecticut regulators similarly labeled prediction markets “unlicensed online gambling.”
California’s Attorney General was preparing to join the fight as of late 2025.
The Supreme Court Waiting Game
Here’s the reality: the legal landscape is splitting. Some federal courts (D.C., New Jersey) have sided with prediction markets. Others (Nevada, Maryland) have sided with states. When federal circuits disagree, the U.S. Supreme Court tends to get involved. Multiple legal analysts have flagged this as a likely SCOTUS-bound conflict.
So yes, the CFTC got steamrolled. But the war isn’t over, it’s just shifted to a different battlefield.
What This Means for You (and Everyone Else)
For Investors: Regulatory Moat or Regulatory Mirage?
Kalshi’s $11 billion valuation is partially premised on its CFTC-regulated status being a durable competitive advantage. The Nevada ruling complicates that thesis. If sports event contracts can be regulated by states regardless of federal registration, the “moat” is shallower than it looks.
That said, the industry’s lobbying firepower, the CPM, Coinbase’s legal team, and the political alignment in Washington, suggests the long-term arc still bends toward federal preemption. But “long-term” in litigation means years, not months.
For Users: More Access, Fewer Guardrails
The practical result of the CFTC’s retreat is straightforward: prediction markets are more accessible than ever. Polymarket is back in the U.S. Kalshi is expanding aggressively. Coinbase plans to integrate prediction market trading directly into its platform by early 2026.
But as Commissioner Johnson warned, this access comes with “too few guardrails.” Consumer protections that exist in regulated sports betting, problem gambling resources, age verification, oversight of marketing practices, are patchier in the prediction market space.
For the Industry: The Playbook Has Been Written
What happened here is a case study for any industry facing hostile regulation:
- Litigate strategically. Kalshi didn’t fight the entire CFTC rulebook. It picked one narrow, winnable question: “Does the agency have statutory authority to block election contracts?” Win that, and everything else weakens.
- Time your moves politically. The appeal was dropped within months of an administration change. Coincidence? No one in the industry thinks so.
- Organize collectively. The CPM transformed individual companies with competing interests into a unified lobbying bloc.
- Go on offense. Coinbase didn’t wait to be sued by states. It sued them first, framing the narrative around federal preemption.
The Watchdog Didn’t Just Get Steamrolled, It Was Outplayed
The CFTC entered 2024 as a feared regulator with 58 enforcement actions under its belt. By the end of 2025, it had filed only 13, dropped its marquee case against Kalshi, and was busy issuing no-action letters that effectively blessed the very activities it once tried to block.
But calling this a “steamrolling” misses the nuance. The prediction market and crypto industry didn’t overwhelm the CFTC through brute force. They outmaneuvered it, combining strategic litigation, political timing, and collective lobbying in ways the agency wasn’t structured to counter.
The fight isn’t finished. States like Nevada and Maryland are mounting formidable counteroffensives, and the Supreme Court may ultimately decide who regulates prediction markets in America. But one thing is already clear: the era of the CFTC as the unchallenged sheriff of the digital asset frontier is over.
And for better or worse, the industry wrote the new rules.
What do you think? Are prediction markets the future of information markets, or just gambling with better branding? [Join the discussion in the comments below] or [subscribe to our newsletter for weekly regulatory deep dives.]
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