US Regulator Reverses Prediction Market Ban in Crypto Regulation Reset

Key Insights

• U.S. regulator reversed course on prediction markets under crypto regulation reset.
• CFTC signaled a reset toward statute-based market oversight.
• Crypto-linked event platforms gained near-term regulatory clarity.

The U.S. Commodity Futures Trading Commission reversed course on prediction markets Wednesday, withdrawing a proposal that sought an outright ban. As per the crypto regulation update, the decision came after the confirmation of new chair Mike Selig and marked a clear break from Biden-era policy.

The move reshaped the regulatory outlook for crypto-linked event contracts in the United States. The shift mattered for crypto news because prediction markets increasingly intersect with digital asset platforms.

Products tied to sports, elections, and economic events have drawn crypto-native users and liquidity. Regulators previously treated that overlap as a risk rather than a feature.

U.S. Commodity Futures Trading Commission records showed the agency withdrew a 2024 notice of proposed rulemaking that classified event contracts as contrary to public interest. Chair Mike Selig said the proposal reflected merit-based regulation rather than statutory interpretation.

He added the commission would not finalize the rule in its existing form. The proposal targeted contracts linked to sports, politics, and geopolitical events. It emerged ahead of the 2024 U.S. presidential election, when political prediction markets gained visibility.

Regulators argued such contracts resembled gambling rather than hedging instruments.

Crypto Regulation: Market Reaction Reflected Regulatory Reset

Mike Selig stated the withdrawal cleared confusion created by the prior crypto regulation approach. He framed the next steps as a fresh rulemaking grounded in the Commodity Exchange Act.

That statute defines the commission’s mandate over derivatives markets.

Crypto Regulation Update | Source: Selig

This shift occurred because the agency sought to realign policy with congressional intent. Selig said the commission would pursue responsible innovation rather than categorical bans.

The language signaled a softer regulatory posture toward crypto-adjacent financial products. Prediction market operators viewed the move as immediate relief.

Platforms offering event contracts had faced mounting legal pressure at the state level. Several states argued that such products violated gambling laws despite federal oversight claims.

Legal Tension Around Event Contracts

Chris Giancarlo, former CFTC chair, said in a social media post that an amicus brief clarified federal jurisdiction. The filing supported Crypto.com in its dispute with Nevada regulators.

Giancarlo argued Congress granted the CFTC exclusive authority over event contracts.

Regulatory Filing | Source: X

That reaction mirrored a broader legal debate around crypto regulation overlap. States pursued enforcement actions while platforms asserted federal preemption. The withdrawn proposal reduced one source of uncertainty but did not end jurisdictional disputes.

Crypto.com and similar platforms argued their products operated within existing derivatives rules. They said contracts settled on objective outcomes, not chance. The CFTC’s change in tone strengthened that argument.

Crypto Regulation: Staff Guidance Also Pulled Back

The commission also withdrew a September staff advisory tied to sports event contracts. That letter warned regulated entities to prepare for litigation risks and operational stress.

It arrived during a period of federal shutdown uncertainty. Selig said the advisory aimed to flag legal exposure but produced unintended effects.

He noted it created uncertainty among crypto market participants. The withdrawal suggested the commission wanted clearer, centralized guidance.

This move followed criticism that staff letters blurred the line between guidance and policy. Firms said such communications increased compliance costs without formal rulemaking. The rollback aligned with Selig’s emphasis on coherent interpretation.

Broader Crypto Regulation Signals

The reset in the crypto regulation extended beyond prediction markets. Public comments from CFTC leadership pointed to broader changes in crypto oversight. Those remarks fed expectations of legislative progress on market structure.

Invest Alpha Pro cited Selig saying a crypto market structure bill neared passage. The comment came amid renewed congressional focus on digital asset regulation. Industry groups have long pushed for clearer statutory frameworks.

Pete Rizzo reported Selig echoed that view during a televised interview. He said crypto market structure rules could see rapid global adoption. Such statements positioned the CFTC as supportive of formalized crypto oversight rather than enforcement-first tactics.

Implications for Crypto News and Platforms

This development reshaped crypto news narratives around U.S. regulation. Rather than expanding prohibitions, regulators signaled recalibration. That mattered for platforms integrating crypto rails with derivatives-style products.

Prediction markets like Polymarket and Kalshi benefited indirectly. Although not named in the withdrawal, their business models depended on permissive interpretations.

The absence of a categorical ban preserved room for operation. Polymarket and Kalshi continued to argue their contracts served price discovery and risk transfer.

The stance of the US CFTC weakened arguments framing them as illicit gambling venues.

Meanwhile, the commission said it would pursue a new crypto regulation rulemaking on event contracts. That process will test how regulators balance innovation with statutory limits.

Near-term focus shifted to congressional action on crypto market structure, which now sets the policy timeline.

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