Crypto Prediction Markets Continue To Be Under Siege — Are Traders Now Fair Game For Prosecutors?

U.S. regulators are urging a court to stop Arizona from enforcing its gambling laws against crypto prediction‑market platform Kalshi.

The agencies are asking for a temporary restraining order and preliminary injunction to halt Arizona’s criminal case and gambling‑law enforcement.

CFTC argues that these contracts tied to sports, elections and other real‑world events qualify as swaps (financial derivatives) under U.S. law, rather than falling under state gambling statutes. The federal regulators based their arguments on the fact that since the contracts are settled on future events with economic impact, they are governed by the Commodity Exchange Act and fall under federal law rather than state authority.

Such interpretation curbs how far individual states can go in blocking or constraining these platforms, which regulators say would otherwise splinter the market into a patchwork of state‑by‑state rules.

Arizona charged Kalshi with illegal gambling over sports and election markets. Arizona, along with an expanding list of other states, argue that contracts tied to sports results operate like ordinary bets and must be treated as gambling, subject to licensing rules, age limits, and consumer safeguards.

According to the court filing, Arizona first sent a cease‑and‑desist order to KalshiEx LLC and Kalshi Trading LLC in May 2025, alleging they were taking unlawful bets in breach of state law. The state then brought criminal charges against both entities for “betting and wagering” under several Arizona statutes, with an arraignment set for April 13.

If the federal preemption is upheld, it will de‑risks U.S. prediction venues, potentially boosting liquidity and making them more attractive as macro and sports‑beta tools for crypto‑savvy traders. However, if states carve out sports and politics as gambling, markets may fragment offshore or into on‑chain, harder‑to‑police venues, raising operational and legal risk premia for anyone treating these contracts as serious hedging instruments.

Cover image from Perplexity. BTCUSD chart from Tradingview.