Letter Sent to CFTC as Court Fights and xAI Pact Shape Prediction Markets

Prediction markets are being shaped and focused in real-time, and at the heart of this development is Kalshi, although other platforms, such as Polymarket, are also involved. There have been numerous courtroom battles and significant partnerships. Now, a letter has been sent to the Commodity Futures Trading Commission (CFTC) in hopes it'll clarify and simplify its stance and view on prediction markets moving forward.

Letter Sent to CFTC

In a letter sent by 16 individuals to the CFTC on June 4, the group argued for a different regulatory approach regarding prediction markets.

The letter was addressed directly to Acting Chair Caroline Pham and Commissioner Kristin Johnson. In it, the group is asking for the CFTC to "adopt a policy of permissionless innovation toward prediction market venues," which they say would be in contrast to the CTFC under the Joe Biden-led administration, which "weaponized regulation against prediction market venues, even attempting to ban an election market exchange that had been approved by the CFTC under the Obama administration back in 2014."

The note added that the prediction markets provide valuable service to the public, citing the 2024 presidential election as evidence due to the markets outperforming more traditional political polling.

Regarding sports, the group argued that "Similarly, regarding sports outcome contracts increasingly being offered by prediction markets, small firms affected by the performance of a team in a game or a season can buy prediction market contracts to manage effects on their sales of sports-related products or services."

As mentioned, there were 16 signatures. These included people like Grover Norquist, a conservative activist and the President of Americans for Tax Reform; John Berlau, the Director of Finance Policy at the Competitive Enterprise Institute; James L. Martin, the Founder/Chairman of 60 Plus Association, which positions itself as a conservative alternative to AARP, and more.

Finally, the letter says that under federal law, such as the Commodity Exchange Act, the CFTC has exclusive jurisdiction over prediction contracts and that sites like Kalshi and Polymarket shouldn't be subject to each of the 50 states' interpretations of gambling laws.

Kalshi Gets Small Legal Win in Nevada, But What About Maryland?

Kalshi has been on both ends of the spectrum when it comes to the legality of its platform.

On the one hand, in Nevada, Kalshi got a small win against the Nevada Gaming Control Board in April as U.S. District Judge Andrew P. Gordon granted Kalshi a temporary restraining order and preliminary injunction to block the state's cease-and-desist order that claimed Kalshi was violating Nevada gaming laws.

Kalshi argued that if the Nevada Gaming Control Board were to move forward, it would cause numerous problems, including harm to users with existing trading positions, reputational damage, lost revenue, and more.

In addition to this cease-and-desist order, Kalshi is also facing similar notices from regulators in New Jersey, Maryland, Ohio, Illinois, and Montana.

In Maryland, Judge Abelson, earlier this month, hasn't given in to the argument that the CFTC has sole jurisdiction over prediction markets and that only they can order Kalshi to exit the market.

He pointed to language in the Commodity Exchange Act, which reads that while the CFTC has jurisdiction over contract trading, it only allows them to override other federal agencies, not state-level regulators.

Polymarket Strikes Deal With xAI

While Kalshi has become the focus of many prediction markets, Polymarket, as mentioned, is also involved, and it recently partnered with xAI, owned by Elon Musk.

The deal will make Polymarket the official prediction market for xAI and X. Polymarket CEO Shayne Coplan highlighted the deal by saying Polymarket and X are the two leading "truth-seeking" platforms.