‘An Explosion of Election Gambling’ Is Nigh, CFTC Warns Appeals Court

According to a statement made by the CFTC over the weekend, Kalshi and others interpret the district court’s ruling on September 6th as a green light for betting on elections. This interpretation stems from the judge’s decision that the CFTC was incorrect in halting the company from offering contracts regarding which party would control each house of Congress.

Following this decision, it was reported that Interactive Brokers, a significant player in the financial sector, intends to provide contracts related to the presidential election via a subsidiary regulated by the Commodity Futures Trading Commission (CFTC).

If the U.S. Court of Appeals for the District of Columbia does not extend the suspension of Kalshi’s contracts during the appeal process, other commodity futures trading commissions (CFTC)-regulated exchanges may also halt these types of contracts due to concerns about public interest. The CFTC has expressed that this increase in election betting on U.S. exchanges could lead to market manipulation and potential damage to electoral integrity.

Industry repercussions

Individually, the Commodity Futures Trading Commission (CFTC) has suggested a prohibition of election-related contracts across all regulated markets under its supervision. Some legal analysts believe this proposed ban might be undermined by the district court’s ruling.

Read more | U.S. Political Prediction Markets: Why Kalshi’s Court Victory Matters

This district court decision could potentially impact the operations of companies dealing with cryptocurrencies. The judgment was built on the Loper Bright ruling from the Supreme Court, which limited the ability of regulatory bodies to define their own statutory authority. Instead, this power was transferred to the judicial system.

According to Alex Thorn, the head of research at Galaxy Digital, it seems probable that federal agencies will face limitations on their powers due to the Lopper Bright ruling and the absence of fresh, specific legislation from Congress. This situation might bring about far-reaching effects within the cryptocurrency sector.

A long-running fight

Last year, Kalshi attempted to list election markets. However, the Commodity Futures Trading Commission (CFTC) halted this move. Subsequently, the company took legal action and was successful last week. Despite the CFTC’s attempt to delay the listing of Kalshi’s contracts with an emergency stay, they were unable to do so. However, the D.C. Appeals Court temporarily paused the live trading of these contracts while it evaluates the CFTC’s appeal request. The contracts resumed trading on Thursday.

Such a stay would cause “irreparable harm” to Kalshi, the company contended in a Friday filing.

In simpler terms, the CFTC (Commodity Futures Trading Commission) recently stated that the claim made against Kalshi is highly deceptive. Moreover, they argued that any financial losses incurred by Kalshi are insignificant compared to the potential damage that could arise from permitting election bets on U.S. futures markets.

Kalshi provides numerous other event-based agreements, as mentioned, and if successful in their appeal, they could potentially add election-related contracts to their offerings for a prolonged period, thereby recovering from any financial setbacks.

It was foreseeable by Kalshi that this situation would occur, as indicated by the CFTC. In other words, the expenses Kalshi has already invested are not related to a delay, but rather to Kalshi’s choice to heavily invest in election wagering, despite the Commission having previously disapproved such contracts.

Ask permission or beg forgiveness?

Kalshi, a company that operates solely within the U.S. using dollars, has expressed frustration over being excluded from this year’s election betting, while its cryptocurrency-focused competitor, Polymarket, saw enormous trading activity instead.

At a hearing on Thursday, Yaakov Roth of Jones Day, representing Kalshi, stated that we were the ones making an effort to abide by the law, while those who are profiting from the delay are those unwilling to comply with it.

In Saturday’s filing, the CFTC called that argument “sophomoric.”

The agency stated that a pharmacy isn’t authorized to distribute cocaine, even though it may be available illegally on the black market.