Kalshi Faces Major Setback as Federal Circuit Courts Split on Prediction Market Regulatory Authority

The 6th Circuit Rules Against Kalshi

The 6th US Circuit Court of Appeals has delivered a substantial legal defeat to prediction market platform Kalshi through a unanimous three-judge panel decision. The court sided completely with Ohio and Tennessee in their regulatory dispute against the company. The judges determined that Kalshi’s sports-event prediction contracts do not qualify as commodity “swaps” under federal law and the Commodity Futures Trading Commission’s (CFTC) jurisdiction. Consequently, Ohio and Tennessee retain the authority to regulate these contracts under their respective state gambling laws. This decision represents a major victory for state-level regulatory authority in what has become an increasingly contentious battle over jurisdictional control.

A Growing Circuit Split Creates Legal Uncertainty

The ruling deepens an already problematic rift in federal circuit court interpretations of prediction market regulation. Last month, the 9th Circuit Court of Appeals reached an aligned conclusion, similarly finding that Kalshi’s argument for federal preemption was insufficient. However, this contradicts an earlier April decision from the 3rd Circuit Court of Appeals, which took the opposite position entirely. That court determined that Kalshi was likely to succeed in its argument that federal law preempts New Jersey’s state regulations, allowing the company to continue operating in New Jersey while pursuing its broader legal challenges. This split represents a fundamental divergence on the same legal question, leaving the prediction market industry in a state of legal uncertainty and highlighting the urgent need for clarification on how courts will treat regulatory conflicts between state and federal authorities.

The Path to Supreme Court Review

The conflicting rulings across multiple federal circuits have created conditions ripe for Supreme Court intervention. A group of state lawmakers has recognized this critical moment, filing an amicus brief directly with the Supreme Court to urge it to take up the case. Their goal is to obtain a definitive Supreme Court ruling that clarifies the central jurisdictional question: whether state authorities or federal agencies hold primary regulatory power over prediction market companies and their operations. Such a ruling would provide the legal certainty that the industry currently lacks under the fractured circuit court landscape.

This regulatory clash could ultimately reshape how emerging financial platforms navigate American regulatory jurisdictions, with significant implications for how digital asset platforms and the broader cryptocurrency market are regulated going forward.

Source: 6th US Circuit Court of Appeals, via Cointelegraph. Not financial advice.