Court Rules Against Kalshi, Affirming States' Authority to Ban Prediction Markets

On August 29, as reported by CoinDesk, crypto prediction market platform Kalshi suffered a major legal setback. A federal court judge in New York formally ruled that even without an explicit comprehensive ban from U.S. federal regulators, individual states retain full authority to prohibit prediction market operations under their own insurance regulations and anti-gambling provisions. The ruling directly supported the allegations made by New York state prosecutors and rejected Kalshi's argument that federal regulations take precedence.

The court filing noted that the core dispute centers on whether such products should be classified as illegal "binary options." Although the Commodity Futures Trading Commission (CFTC) has jurisdiction over future contracts and granted Kalshi relevant operating licenses, the court held that this federal-level licensing does not supersede states' sovereign authority to protect their citizens from fraudulent gambling activities. The decision is seen as a significant regulatory obstacle to the expansion of crypto-based prediction markets.

[TechFlow]