Prediction markets face ban risk as US lawmakers target sports bets

Sports-driven prediction markets are increasingly at risk of being banned in the US. The dispute centers on how “prediction markets” should be classified: as federally regulated derivatives/swaps under the CFTC, or as state-regulated gambling. Key developments cited include: - March 12: the CFTC opened formal rulemaking for prediction markets, putting manipulation and oversight under federal scrutiny. - States’ legal actions: Arizona filed criminal charges against Kalshi; Nevada obtained a court order blocking Kalshi unless it gets a state sports-betting license; Massachusetts has also taken action against Kalshi’s sports contracts. - Congress: a bipartisan group of senators is preparing legislation that would ban sports bets and “casino-style” contracts on CFTC-regulated prediction markets—arguing these products exploit legal loopholes and undermine state authority. Industry fault line: the core question is “bet or swap?”. States argue contracts function like wagers without credible hedging, so states regulate. Operators argue event contracts fit within commodities/derivatives frameworks and that a national market can’t work if states can reclassify the same product as illegal. The article also highlights product-design risk: if settlement definitions are elastic, prediction markets can drift toward sportsbook-like wagering and trigger litigation. Why traders should care: this is a regulatory category fight, not just one company. If “prediction markets” are constrained or carved out of the CFTC regime, liquidity and market confidence for crypto-native prediction platforms (and related trading volumes) could weaken quickly, while longer-term outcomes depend on how courts and Congress craft a hybrid regime. Prediction markets are here to stay, but their sports-focused business model may need to change.