U.S. CFTC Proposes Ban on Political Event Contracts

As a seasoned crypto investor with a deep understanding of the regulatory landscape, I find this latest development from the U.S. Commodity Futures Trading Commission (CFTC) disheartening. The proposed ban on event contracts that bet on political outcomes feels like an overreach and a misapplication of resources.

As a researcher studying financial regulations, I can share that the U.S. Commodity Futures Trading Commission (CFTC) announced its intention to reject event contracts related to political activities during a vote held on Friday. This marks the beginning of an initiative by the CFTC to shield American customers from trading platforms offering predictive contracts in this domain.

As a seasoned crypto investor, I’ve closely followed the lengthy legal battle waged by the agency against firms dealing with political outcome trading. The proposed rulemaking put forth by the three Democratic appointees at the U.S. derivatives agency seeks to label such activities as against the public interest and equivalent to illicit contracts on war, terrorism, and assassination. It’s important to note that the Commodity Futures Trading Commission (CFTC) is not a gambling regulator, and given its limited capabilities, it wouldn’t be able to maintain market integrity in this field.

Prediction markets such as PredictIt, Polymarket, Zeitgeist, and Kalshi allow users to purchase contracts based on real-life events’ outcomes, which have gained traction within crypto communities. Users place yes-or-no wagers that yield profits if correct and incur losses if incorrect. The US regulatory proposal aims to prohibit such contracts for companies under its jurisdiction regarding political contests, awards shows, and sporting event results.

In simpler terms, during last week’s gathering, Chairman Rosthman expressed his concern that agreements connected to political occurrences might trivialize and diminish the authenticity of the quintessentially American practice of taking part in democratic elections. To put it directly, such contracts would place the Commodity Futures Trading Commission (CFTC) in a position akin to overseeing elections.

Back in March, Behnam announced that a new proposal was imminent. Today, we saw the draft version of this rule move forward, but it’s important to note that it now enters a 60-day public comment period. Following this, the final approval of the rule will be required.

At the weekly gathering on Friday, Commissioner Caroline Pham voiced her opposition to the proposed regulation. She described it as an “extraordinary expansion” of authority, and further criticized the regulatory agency’s past legal and enforcement actions. She recommended that the Government Accountability Office conduct an examination of the regulator for greater accountability.

“A third-party review can help us get back to the basics and on track,” Pham said.

Commissioner Summer Mersinger also voted against the proposal.

The rule’s enforcement significance was underscored by Commissioner Christy Goldsmith Romero who criticized the absence of the agency’s enforcement team during Friday’s meeting, labeling it a neglect of their professional responsibilities.

In an email to CoinDesk, Brian Quintenz, a previous Commissioner at the Commodity Futures Trading Commission (CFTC) and current head of policy for digital assets investment firm a16z Crypto, expressed his disapproval of this action as “poor governance.”

Rather than imposing strict regulations and allowing these emerging markets to grow under responsible conditions, the Commission intends to impose a ban on a substantial portion of them instead. It’s crucial that financial regulation is informed by data and the rule of law, rather than unfounded assumptions. Moreover, this decision creates a significant level of uncertainty and may drive individuals seeking risk management tools towards unregulated platforms, potentially putting consumers at risk.

Nikhilesh De contributed reporting.