Prediction Markets Encounter Crypto-Like Crackdown as Kalshi Takes on Regulators Across the Country

A fresh regulatory upheaval is brewing, and this time it’s centered on prediction markets rather than digital currency.

Just as digital currencies once clashed with the ambiguous boundaries of commodities, securities, and gambling, similar divides are now emerging beneath Kalshi, the federally regulated event-contract marketplace backed by investors including Sequoia and Charles Schwab.

On Monday, the New York State Gaming Commission issued a cease-and-desist notice, adding to a growing roster of states taking action against Kalshi’s sports and event-related markets.

Hours later, the firm launched a lawsuit in federal court, contending that the Commodity Futures Trading Commission (CFTC), not state gambling authorities, possesses exclusive jurisdiction.

This is the same strategy Kalshi has employed in Nevada, New Jersey, Maryland, and Ohio, consistently invoking federal pre-emption under the Commodity Exchange Act.

Kalshi = ultimate fight companion pic.twitter.com/5NDey6Pd1L

— Will Brackett (@willibeemin) October 25, 2025

Regulatory Turf Wars Resurface: Is a Prediction Contract a Regulated Derivative?

The legal dilemma resembles crypto’s initial turf conflict: Is a prediction contract a regulated derivative or merely a bet under a different label?

The attorney general of Arkansas made a decisive statement last week, declaring that Kalshi’s event contracts qualify as “gambling under state law,” irrespective of how they are identified.

Regulators in Illinois, Pennsylvania, and Michigan swiftly issued warnings that participating in or providing such markets without a gaming license amounts to illegal gambling.

Kalshi’s argument is based on its Designated Contract Trading market (DCM) license, the same federal designation that permits the Chicago Mercantile Trading network to offer futures.

The company asserts that CFTC oversight takes precedence over any state’s anti-wagering statutes, and that event contracts ranging from “Will inflation rise above 3% in Q4?” to “Will the New York Rangers make it to the Stanley Cup Final?” are valid hedging tools.

States contest this classification, portraying them as unauthorized sports bets and referencing longstanding gambling prohibitions.

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As State Regulators Clash, Prediction Markets Are Flourishing

how kalshi traders see the world pic.twitter.com/gbwFBE6wuz

— Kalshi Intern (@InternAtKalshi) October 22, 2025

The irony lies in the fact that while regulators are entrenched in battle, prediction markets are gaining traction. Kalshi has recently secured a licensing agreement with the NHL, permitting the utilization of official league logos, marking the first such partnership between a U.S. professional sports league and a prediction-market operator.

Trading volumes have soared since the NFL season commenced, enhanced by a Robinhood integration that channels retail order flow directly into Kalshi’s platforms.

Shares of DraftKings and FanDuel have dropped by double digits since, reflecting crypto holder anxieties that a federally endorsed competitor could undermine their state-sanctioned monopolies.

Beneath the surface lies a significant structural conflict over federal supremacy versus state rights. The CFTC, having recently relaxed its approach to crypto futures in 2017, now finds itself at the forefront of another definitional dispute: whether data-driven event trading represents a new asset category or merely gambling masquerading as fintech.

States are signaling they will not back down easily, cautioning that any sportsbook, operator, or broker involved with event contracts risks its gaming license.

For now, the crypto market flourishes within this legal gray area. Kalshi has obtained injunctions in certain regions, has pending appeals elsewhere, and retains confidence that its federal shield will be effective.

However, the growing momentum of state opposition indicates an imminent test case that could establish the parameters of financial innovation in contrast to gambling law over the next decade, reminiscent of crypto’s own early regulatory skirmishes, albeit this time centered around the future of information markets.

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