Prediction Market Platforms Face Setback in Federal Appeals Court Ruling

A federal appeals court has dealt a significant blow to prediction market platforms, rejecting their requests for injunctive relief against Nevada's gaming regulators. The Ninth Circuit Court of Appeals ruled that sports-related event contracts are not derivatives regulated by the federal government.

The decision affects Kalshi and Crypto.com, two popular prediction market platforms, as well as Robinhood, which also features event contracts on its trading platform. The court rejected the platforms' claims that all event contracts, regardless of topic, are swaps, a type of derivative under the Commodity Futures Trading Commission's (CFTC) purview.

The CFTC has been at odds with 44 states over regulation of prediction markets, with the agency arguing it has exclusive jurisdiction to make rules for these platforms. However, the Ninth Circuit's decision contradicts a ruling from the Third Circuit Court of Appeals in April, which found that only the CFTC can regulate sports-related event contracts.

The dispute is likely to eventually reach the Supreme Court, with Joshua Mitts, a professor at Columbia Law School, calling it a 'classic circuit split.'