Prediction Markets Get Relief as CFTC Pulls Ban Proposal
The US Commodity Futures Trading Commission has withdrawn a Biden administration-era proposal that would have banned sports and political prediction markets, marking a significant shift in the regulatory outlook for one of the fastest-growing segments of the digital derivatives industry.
CFTC Chair Mike Selig confirmed on Wednesday that the agency has pulled a 2024 notice of proposed rulemaking that sought to prohibit event contracts tied to sports, politics, war, and similar topics.
The proposal had classified such contracts as “contrary to the public interest” and aimed to effectively shut down a large portion of the prediction market sector.
Selig said the withdrawn proposal reflected what he described as a politically motivated attempt to impose merit-based regulation, particularly around political event contracts ahead of the 2024 presidential election.
“The Commission is withdrawing that proposal and will advance a new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act that promotes responsible innovation in our derivatives markets in line with Congressional intent,” Selig said.
A Shift in Regulatory Direction
The decision signals a major policy reversal for the agency and provides temporary relief for prediction market platforms that have gained traction in recent years.
Platforms such as Polymarket and Kalshi allow users to trade contracts based on the outcomes of real-world events, ranging from election results to sports championships and economic data releases.
These markets have surged in popularity, particularly among crypto-native users who view them as a more transparent and liquid alternative to traditional betting. Some major crypto companies, including Coinbase and Crypto.com, have also explored or launched prediction-style offerings as part of broader derivatives strategies.
However, the sector has faced mounting legal challenges from several US states. Regulators in those jurisdictions have argued that sports-related event contracts amount to unlicensed gambling.
Prediction market operators have pushed back, maintaining that their products are federally regulated derivatives overseen exclusively by the CFTC rather than state gaming authorities.
Staff Advisory Also Withdrawn
Alongside the rulemaking rollback, Selig said the CFTC has also withdrawn a September staff letter that addressed sports event contracts. The advisory had reminded CFTC-regulated entities of their obligations when facilitating such contracts and warned them to prepare for potential litigation.
Issued ahead of a possible US government shutdown, the letter told firms to be ready for “all foreseeable conditions” tied to the trading and clearing of sports-related contracts. It also noted that staff were aware of multiple state-level regulatory actions and lawsuits targeting these markets.
The advisory urged companies to maintain contingency plans, disclosures, and risk-management procedures in case of enforcement or legal challenges.
Selig acknowledged that the staff letter was meant to highlight litigation risks but said it ultimately caused confusion among market participants.
