Key Points:
- The CFTC is investigating Crypto.com and Kalshi’s sports-related prediction market contracts, according to a report from Bloomberg.
- The investigation centers on whether these sports contracts qualify as “gaming” under the Commodities Exchange Act.
- A Republican-led CFTC may adopt a more relaxed regulatory stance, yet the ongoing investigations indicate a cautious approach towards certain event contracts.
Full Article:
The current inquiry into Crypto.com and Kalshi’s sports contracts revolves around a crucial question: are event contracts related to sports considered “gaming” as defined by the Commodities Exchange Act? This inquiry is spearheaded by the Commodity Futures Trading Commission (CFTC).
As reported by Bloomberg, CFTC officials are delving into the Super Bowl event contracts offered by Crypto.com and Kalshi.
Aaron Brogan, a crypto lawyer, stated, “If sports does not constitute gaming, then, according to the CFTC’s legal stance, the commission likely lacks the authority to prevent Crypto.com and Kalshi from self-certifying these contracts.”
However, Brogan cautions that the issue is more complex than it appears at first glance. He noted that the ruling from last fall allowed Kalshi to proceed with election betting contracts by affirming that they did not fall under restricted categories of the CFTC.
Brogan highlights that in the aforementioned ruling, the judge characterized “gaming” as participating in games or betting for stakes, referencing discussions during the crafting of the Commodities Exchange Act concerning its interpretation regarding sports betting. Despite this, Brogan remains skeptical about the rigidity of this classification.
Brogan points to different definitions, such as the Merriam-Webster’s, which describes gaming as the act of playing games for stakes. According to him, this distinction suggests that these prediction markets could present strong arguments, should the matter escalate to judicial review.
Lastly, the evolving nature of the CFTC itself adds another layer to this debate. Many anticipate that the appointment of Republican Caroline Pham as Chair might lead to a more permissive regulatory landscape. However, Brogan notes that the extent of this approach remains under discussion, as probing activities by the CFTC into Kalshi’s contracts suggests that the commission may still enforce strict scrutiny on certain event contracts.
