Federal regulators have moved to block Arizona from treating Kalshi’s prediction markets as illegal gambling, escalating a high‑stakes legal fight that could reshape how the U.S. treats event‑based crypto markets.
In a filing filed yesterday, the Commodity Futures Trading Commission and the U.S. Department of Justice asked a federal court for a temporary restraining order and a preliminary injunction to stop Arizona from enforcing state gambling laws against Kalshi. The agencies argue Kalshi’s contracts — wagers tied to sports, elections and other real‑world outcomes that settle for cash based on future economic events — are financial derivatives (“swaps”) governed by the federal Commodity Exchange Act, not state gambling statutes.
Why the federal government intervened
- The CFTC/DOJ position is that Kalshi’s markets trade on designated contract markets and settle on future events with economic impact, which places them under federal jurisdiction.
- Federal preemption, the agencies say, is needed to prevent a patchwork of state rules that would fragment the market and create legal uncertainty for national platforms.
Arizona’s case and recent court developments
- Arizona issued a cease‑and‑desist to KalshiEx LLC and Kalshi Trading LLC in May 2025 and subsequently charged both entities with “betting and wagering” under state law. The arraignment was set for April 13.
- A recent Third Circuit ruling held that sports event contracts on designated contract markets qualify as “swaps” that preempt state gambling laws — though one judge strongly dissented, calling Kalshi’s legal defense a thin attempt to mask what the judge viewed as conventional sports betting.
Broader context: a national fight over prediction markets
- The CFTC/DOJ action against Arizona is part of wider litigation and enforcement pressure involving state authorities in Connecticut and Illinois as well.
- Lawmakers are also weighing in: Senators Adam Schiff (D‑CA) and John Curtis (R‑UT) introduced a bipartisan bill targeting sports‑style betting on platforms like Kalshi and Polymarket.
- Meanwhile, Representative Seth Moulton banned his staff from participating in prediction markets, and Representatives Adrian Smith and Nikki Budzinski introduced the PREDICT Act to bar members of Congress from trading on political outcome markets.
Polymarket and other enforcement flashpoints
- Kalshi’s main rival, Polymarket, faces mounting legal scrutiny: a New York class action filed in February accuses it of operating an unlicensed sports‑betting business; Nevada regulators have opened a civil case against its parent; and Ohio, Utah and Iowa are also probing the platform.
- Internationally, Argentina ordered a national ban on Polymarket after it offered markets predicting inflation. The platform also endured backlash after bettors targeted a journalist with threats following coverage of an Iranian missile report.
- Both Kalshi and Polymarket updated their rules at the end of March to block politicians, candidates and sports insiders from trading on related markets.
What’s at stake
If federal preemption is upheld, U.S. prediction markets would be de‑risked: platforms could operate under clear federal rules, likely improving liquidity and making these venues more attractive as macro and sports‑beta tools for crypto traders. If states prevail in carving out sports and political markets as gambling, trading could migrate offshore or to on‑chain venues that are harder to police, increasing legal and operational risks for users and platforms alike.
The case will be a key test of whether event‑based crypto markets are treated as regulated financial instruments or as state‑governed gambling — a decision that will shape the future of prediction markets in the U.S. and the wider crypto ecosystem.
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