Kalshi v. CFTC - Round I
Preface: Billion-dollar election markets are here
We’re back and with a vengeance.
We did quite a bit of soul searching over the last six months. We felt, and continue to do so, that we have the best legal arguments when it comes to crypto. We have submitted amicus briefs in SEC v. Coinbase and SEC v. Binance. Our ideas did not gain much traction; if anything, it seems that even more people are under the impression that one can invest in crypto. This illusion is greater than ever.
That’s ok. If anything, it makes our job even more important. It made us realize that we need to take a different approach. We’re not ready to break the news just yet, but expect to be surprised in 2025 because we have some important developments in store.
For this month though, we’ll take a quick break from our regular crypto programming and do a quick detour into event contracts. This is an area near and dear to our hearts, and at the end of our series, we will tell you why.
So, what is happening in this space? Here is a quick recap of recent events:
The CFTC requested public comments on a proposal to amend its event contract rules. They were originally due July 9, but were extended for another month.
NFI filed a comment letter. Yes, even when we were not writing blogs, we were still writing. We are always writing.
All of this was unfolding while there was litigation happening in parallel. Kalshi had sued the CFTC in November 2023 in the D.C. District Court (case docket). By doing so, it challenged an order by the CFTC prohibiting Kalshi from offering certain event contracts based on political events for trading on its exchange.
On September 6, 2024, the CFTC’s order was overturned and Kalshi was cleared to offer its election markets contracts.
The District Court entered a brief administrative stay and then denied the Commission’s motion for a stay pending appeal on September 12, 2024.
The CFTC then took it up the chain to the U.S. Court of Appeals for the D.C. Circuit. It was able to prevent Kalshi contracts from trading for a little longer, however on October 2, 2024, the CFTC was denied again, allowing Kalshi to restart the election markets.
Approximately two weeks later, the U.S. Court of Appeals fast-tracked the CFTC’s case challenging Kalshi’s ability to offer U.S. political election contracts (case docket). The CFTC filed its brief on October 16, 2024. Kalshi filed its response on November 15, 2024. A bunch of amicus briefs were submitted on both sides. The CFTC filed its reply last week, on December 5, 2024. Now, oral argument is scheduled for January 17, 2025.
So, in case you were wondering why all of a sudden you could put some money on Donald Trump winning the elections in October 2024, this is why. Nadex tried this back in 2012 and was unsuccessful; Kalshi found a way to crack the nut. Along the way, Kalshi capitalized on the interest in elections, reportedly seeing $1 billion in election trades.
That’s a lot of money riding on a legal conclusion. Was it the right one?
