Trump Administration Backs Prediction Markets in Federal-State Power Struggle

The Trump administration has signaled a decisive shift in the regulatory treatment of prediction markets, positioning the Commodity Futures Trading Commission (CFTC) as a shield for platforms like Kalshi and Polymarket against aggressive state-level litigation. This intervention, led by newly appointed CFTC Chairman Michael Selig, represents a significant escalation in the jurisdictional battle between federal regulators and state gaming boards. By asserting 'exclusive jurisdiction' over these markets, the administration is effectively attempting to preempt state gambling laws that have recently been used to shutter prediction market operations in several jurisdictions.

At the heart of the conflict is the legal definition of a prediction market. While states like Nevada argue that these platforms are essentially unlicensed casinos facilitating illegal gambling, the CFTC maintains they are regulated exchanges for event contracts. These contracts allow participants to buy and sell positions on the outcome of real-world events, from weather patterns and geopolitical shifts to sports results. The financial stakes are immense; Kalshi recently reported over $1 billion in trading volume for the Super Bowl alone. However, the data reveals a heavy reliance on sports, with 90% of Kalshi’s volume and 50% of Polymarket’s volume tied to athletic competitions, placing them in direct competition with traditional, state-regulated sportsbooks.

“

However, the data reveals a heavy reliance on sports, with 90% of Kalshi’s volume and 50% of Polymarket’s volume tied to athletic competitions, placing them in direct competition with traditional, state-regulated sportsbooks.

Chairman Selig’s public stance, articulated in a recent Wall Street Journal op-ed, characterizes state interventions as 'overzealous' and an obstacle to financial innovation. This federal backing provides Kalshi and Polymarket with a critical legal lifeline. If the CFTC’s claim of exclusive jurisdiction holds, these platforms could theoretically operate in all 50 states, bypassing local prohibitions and the costly licensing requirements typically associated with state-level gambling operations. This would represent a massive deregulation of the betting industry, potentially eroding the ability of states to collect tax revenue from gambling and maintain local oversight of consumer protections.

The administration's support is not without controversy. Multiple reports have highlighted that friendly regulatory decisions by the CFTC could potentially benefit the financial interests of the President’s family, raising questions about the motivations behind this sudden pivot toward federal preemption. Critics argue that by shielding these platforms, the administration is creating a regulatory loophole where 'prediction' serves as a euphemism for high-stakes wagering, stripped of the rigorous oversight applied to traditional gaming entities.

Looking forward, the resolution of this conflict will likely be decided in the federal court system, where the Nevada Gaming Control Board and other state entities are expected to challenge the CFTC's authority. If the administration prevails, it could pave the way for a new era of 'event-driven' finance, where almost any public occurrence can be commodified and traded on a national scale. For investors and market participants, this represents a frontier of high-liquidity, low-friction wagering, but for state regulators, it represents a direct threat to their sovereign authority over vice and local commerce.