Conflicting federal court rulings regarding Kalshi’s prediction markets are creating disparate access across U.S. states. Aaron Courtney, co-founder of Kalshinomics, stated this situation risks fragmenting market access and liquidity.
What Happened
Federal rulings concerning Kalshi have introduced a risk of fragmentation in U.S. prediction market access and trading venues, according to Aaron Courtney, co-founder of Kalshinomics, as reported by Crypto News. New Jersey has formally requested the U.S. Supreme Court to resolve these conflicting federal rulings. This petition followed a Third Circuit decision favoring Kalshi, which was then contradicted by a Ninth Circuit ruling four days later in the company’s Nevada case. Reportedly, the legal system is bifurcating access faster than trading data reflects any separation in prices or liquidity, Courtney told Crypto News.
New Jersey’s September 2 petition for a writ of certiorari asked the Supreme Court to review the Third Circuit’s decision. The state aims to determine whether the Commodity Exchange Act (CEA) precludes states from applying sports-gambling laws to contracts traded on a Commodity Futures Trading Commission (CFTC)-registered market, as previously reported by Crypto News. Kalshi operates a CFTC-regulated designated contract market and maintains its event contracts fall under federal derivatives law. Conversely, New Jersey views Kalshi’s sports products as wagers subject to state licensing and consumer protection rules.
Key Details
- New Jersey’s Supreme Court petition specifically addresses the contradiction between a Third Circuit ruling, which upheld a preliminary injunction preventing New Jersey from enforcing its gambling laws against Kalshi’s sports contracts, and a Ninth Circuit decision, which determined Kalshi’s sports contracts were likely wagers, allowing Nevada regulators to apply state gaming rules (Crypto News).
- The Third Circuit decision found Kalshi had a reasonable chance of demonstrating its contracts qualify as swaps under the Commodity Exchange Act, whereas the Ninth Circuit concluded they were likely bets (Crypto News).
- There are 38 active prediction market cases pending across 21 states, with cease-and-desist letters issued in at least 10 jurisdictions, according to Casino.org’s Prediction Market Litigation Tracker.
- Michigan issued a preliminary injunction on September 1, ordering Kalshi to prevent residents from accessing sports contracts, with potential daily fines of $500,000 for non-compliance (Crypto News).
- Washington state has imposed restrictions on Kalshi covering sports, elections, and political contracts, though commodities, climate, economics, and financial markets remain available (Crypto News).
Why It Matters
The unresolved legal divide could result in traders having access to different products based on their state of residence and the applicable federal circuit, as stated by Aaron Courtney (Crypto News). This situation risks creating a fragmented market where prediction market access increasingly depends on geographical location. Casino.org identifies New York, New Jersey, Minnesota, and California as significant venues for this litigation, highlighting the broad impact of these legal challenges. Regulators consistently argue that sports event contracts function as unlicensed gambling, while exchanges assert their federal registration and CFTC authority (Crypto News).
Courtney indicated that while heavily traded national contracts may not experience significant disruption from localized restrictions, local markets face higher liquidity risks. For instance, a September 7 snapshot showed Kalshi markets for Washington Supreme Court races with spreads of approximately 20 cents and limited trading activity, contrasting with 1 to 1.5 cent spreads in major MLB and NFL game markets. The exclusion of active market makers or informed participants due to state restrictions could impact liquidity and price discovery more significantly than the loss of occasional retail traders, according to Courtney (Crypto News).
What’s Next
New Jersey’s petition for Supreme Court review does not guarantee the court will hear the case. Kalshi will have an opportunity to respond before the Supreme Court decides whether to accept the petition (Crypto News).
Originally reported by Crypto NewsPublished
Sources & References
Primary source
- Crypto Newscrypto.news