Crypto.com prediction market faces regulatory setback, but the battle is far from over

The legal tide appears to be turning against prediction market companies in their battle with US state regulators, with a federal judge in Nevada denying Crypto.com’s request for relief last Thursday.

Crypto.com, like current market leader Calci, preemptively sued the Nevada Gaming Control Board in June, seeking a preliminary injunction to block the gaming board’s attempts to impose its own regulations on the company or open its prediction markets to state residents.

Like Karshi, Crypto.com also argued that exclusive regulation by the Commodity Futures Trading Commission protects it from state regulators. But unlike Carsi, the same judge in the case, Andrew Gordon, denied the injunction.

Members of the Nevada Gaming Control Board also celebrated the victory, declaring “mission accomplished” at a meeting this week. Las Vegas Review Journal.

But that’s a false alarm, says a cryptocurrency and emerging financial products lawyer. “This gives us six ways to lose before Sunday’s appeals court,” said Aaron Brogan, founder and lead attorney at the Brogan Law Firm. decryption.

The full transcript of the Crypto.com hearing and Judge Gordon’s ruling will not be released until January, but a screenshot shared by sports legal analyst Dan Wallach has been circulating on X.

In it, Judge Gordon argued that Crypto.com’s sports contract “does not qualify as a ‘swap’ under the CEA because it is based on the ‘outcome’ of a sporting event, rather than the ‘occurrence’ or non-occurrence” of a sporting event, Wallach noted.

The Commodity Exchange Act (CEA) is the core of the federal law that gives the CFTC regulatory authority over futures, options, and swaps. Because prediction market contracts are neither futures nor options, U.S. companies have relied instead on proving they are swaps.

“This idea that there is a legally significant distinction between ‘result’ and ‘occurrence’ is, in my view, completely fanciful,” Brogan said. decryption. “As far as I know, no one has actually asserted that in this case. The idea comes from the definition of a ‘swap’ that a contract can be a swap if it is ‘dependent on the occurrence or degree of occurrence of an event or coincidence.’

The denial of the injunction was notable because Mr. Kalsi achieved a major legal victory in the state by obtaining an injunction earlier this year. It’s even more surprising because Judge Gordon was also hearing Carsi’s case. However, it appears that the judge either changed his mind or ruled against Crypto.com based on whether there is a technical or legal difference between “result” and “occurrence.”

“I think this is clearly wrong. As far as I can see, the judge has not provided any support other than his own rhetorical arguments,” Brogan said, again noting that the full transcript has not yet been released.

This has been a big year for prediction markets to attract US users to their platforms. According to Dune Analytics’ dashboard, total trading volume for Kalshi, Polymarket, Limitless, and Myriad last week approached $1.5 billion. This is roughly equivalent to the level of volume reached in the run-up to the 2024 US presidential election. During election week, the total skyrocketed to nearly $2 billion. (Disclosure: Myriad is a product of Dastan. decryptionis the parent company of. )

Calsi became the first fully regulated prediction market to open in the US after the CFTC dropped a complaint blocking the company from offering sporting event contracts to US users. Meanwhile, Polymarket has received approval and is preparing to launch a U.S. division soon. A frequently cited Certuity report estimates that the prediction market will reach $95.5 billion by 2035, with a compound annual growth rate of 46.8%.

But there is a growing list of state regulators taking on prediction markets in court, including Maryland, New Jersey and Nevada. The CFTC requires prediction market companies to obtain a designated contract market license, making the industry an attractive home for crypto exchanges that already have a license to expand into the derivatives market.

Crypto.com is unique among the growing number of U.S. prediction market companies in that it is the first cryptocurrency exchange to receive a so-called full house license from the CFTC.

Just last week, the company received its latest Designated Contract Market (DCM) license through the North American Derivatives Exchange. The company has had a DCM license since 2004 and was acquired by Crypto.com in 2022.

Since then, the exchange has partnered with fantasy sports and gaming company Underdog Sports to begin offering sports prediction markets through the Underdog app. The Underdog app is available in most of the United States and all Canadian provinces except Ontario.

Crypto.com did not immediately respond to a request for comment. decryption.