A growing legal clash over prediction markets in the United States is intensifying after federal regulators aligned with the Trump administration stepped in to support industry operators Kalshi and Polymarket, even as Nevada moves forward with enforcement action to shut down parts of their businesses.
The dispute raises a broader question facing courts and regulators: whether prediction markets are financial products governed by federal law or a form of online gambling subject to state control.
The latest developments came after the U.S. Court of Appeals for the Ninth Circuit rejected Kalshi’s request to pause enforcement actions by Nevada regulators. Within hours of the decision, the Nevada Gaming Control Board filed a civil lawsuit seeking to block the platform from offering sports-related event contracts to state residents.
Nevada Pushes Gambling Enforcement
Nevada regulators argue that Kalshi’s event contracts, which allow users to trade on outcomes such as sports results, function similarly to traditional sports betting and therefore require a state gaming license.
Officials say the company is offering unlicensed wagering that violates Nevada’s gaming laws and undermines the state’s tightly regulated betting market.
The lawsuit seeks an injunction that could force Kalshi to halt its local operations while litigation continues. The state has taken similar action against other platforms, reflecting a wider effort by multiple jurisdictions to limit prediction markets they view as gambling products.
Kalshi disputes that characterization, maintaining that its contracts are financial derivatives, not bets. The company operates as a federally regulated exchange and has moved to have the case transferred to federal court, arguing that state laws are preempted by federal oversight.
Federal Regulators Enter the Fight
At the center of the dispute is the Commodity Futures Trading Commission (CFTC), which, under Chairman Michael Selig, has taken a more active stance in defending prediction markets. The agency filed an amicus brief supporting federal jurisdiction, arguing that states cannot reclassify federally regulated derivatives trading as illegal gambling.
The Trump administration’s backing of Kalshi and Polymarket shows a broader policy shift toward treating prediction markets as part of the financial system rather than the gambling industry. Federal officials argue that allowing individual states to impose bans could create fragmented regulation and undermine national derivatives markets.
Prediction platforms allow participants to buy contracts priced between one and 99 cents based on the probability of real-world events occurring. While markets cover politics, economics, and weather outcomes, sports-related contracts account for the majority of trading volume.
What Comes Next for Prediction Markets
The legal battle is unfolding across several courts and could ultimately determine who regulates prediction markets nationwide. States, including Massachusetts, Tennessee, and others, have issued lawsuits or cease-and-desist orders, while operators continue to argue for federal protection.
Nevada’s enforcement action increases immediate pressure on Kalshi, though appeals, including a potential emergency request to the U.S. Supreme Court, remain possible.
The outcome could reshape how Americans participate in event-based trading and define the boundary between financial speculation and online gambling for years to come.
Cover image from ChatGPT, BTCUSD chart from Tradingview
