CFTC Withdraws Biden-Era Proposal to Ban Political and Sports Prediction Markets

TLDR

• CFTC has withdrawn a 2024 proposal that would have banned event contracts for sports, politics, and war-related topics
• Chair Mike Selig called the proposal a “frolic into merit regulation” by the Biden administration ahead of the 2024 presidential election
• The agency also pulled back a September staff letter warning companies about litigation risks from sports event contracts
• The CFTC plans to advance new rulemaking that promotes innovation in derivatives markets
• Platforms like Polymarket, Kalshi, Coinbase, and Crypto.com have faced legal challenges from states claiming they offer unlicensed gambling

The US Commodity Futures Trading Commission has reversed course on prediction markets. The agency withdrew a 2024 proposal that would have banned contracts on political events, sports, and war.

CFTC Chair Mike Selig announced the decision on Wednesday. He described the original proposal as a “frolic into merit regulation” by the previous administration.

The 2024 proposal sought to classify event contracts as “contrary to the public interest.” It would have banned betting on elections, sports outcomes, and conflicts.

The agency plans to create new rules instead. Selig stated these will be “grounded in a rational and coherent interpretation of the Commodity Exchange Act.”

The new approach aims to promote “responsible innovation in our derivatives markets in line with Congressional intent.” This represents a complete shift from the Biden administration’s position.

Impact on Prediction Market Platforms

The decision affects platforms like Polymarket and Kalshi. These services surged in popularity for allowing bets on various events.

Coinbase and Crypto.com also offer prediction market products. All these platforms have faced legal challenges from multiple states.

State regulators argue these platforms offer unlicensed gambling. The platforms counter that they fall under CFTC regulation exclusively.

The CFTC also withdrew a September staff letter. That letter reminded regulated entities of their obligations when facilitating sports event contracts.

The September advisory warned companies to prepare for litigation. It told them to have “appropriate contingency planning, disclosures, and risk management policies and procedures.”

Selig said the advisory “intended to highlight litigation considerations.” However, it “inadvertently created confusion and uncertainty for our market participants.”

Political Shift Under Trump Administration

The policy change follows President Donald Trump’s return to the White House. Trump appointed Selig as the new CFTC chairman.

Selig was recently confirmed to lead the agency. His appointment signaled a more favorable stance toward prediction markets.

The CFTC had allowed political prediction markets to launch in 2024. This came after the agency lost a court fight over Kalshi’s intended offering.

The Trump administration’s support has increased industry interest. More companies are seeking to enter the prediction markets sector.

The CFTC is expected to play a central role in digital assets oversight. Congress is currently negotiating a crypto market structure bill.

That legislation aims to establish the CFTC as the primary regulator of crypto spot markets. The bill excludes markets that involve securities.

Selig stated he looks forward to working with staff on event contracts rulemaking. The new rules are expected to be more industry-friendly than the withdrawn proposal.

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