A Legal Setback For Prediction Markets? Inside The Crypto.com Vs. Nevada Decision
Roundup: Metamask is integrating Polymarket; Kalshi volume was down this weekend; you can bet on the next football coach at Penn State at Kalshi
Correction: This story has been updated to reflect this would be the third prediction markets case to reach an appellate court.
We already knew that a federal judge had ruled against Crypto.com in its case against Nevada, in a bid to block the state from enforcing its prohibition on operating sports betting without a license.
Until now, we didn’t know much about why Judge Andrew Gordon ruled against Crypto.com and denied its motion for a preliminary injunction — but his written order sheds light on that
The ruling is an early blow for the prediction markets industry as legal battles begin to take shape. But we’re still trying to square this decision vis-à-vis Judge Gordon’s earlier decision for Kalshi in its case against the state, which seems to be at odds with this decision.
Regardless, the case now appears headed for an appeal in the Ninth Circuit, and there are some questions about whether it will hold on appeal. (It would be the third prediction markets case to reach an appellate court.)
More from Kim in a thread on Twitter; a lot of the decision turns on defining “occurrence” and “event” within the confines of the case and prediction markets offerings:
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So what does Judge Gordon say in the opinion? Here are some excerpts:
I deny the motion for judgment on the pleadings because, based on the pleadings, Crypto’s event contracts are not “swaps” falling within the CFTC’s exclusive jurisdiction. I deny the motion for preliminary injunction because Crypto has not met its burden to show that it is likely to succeed in demonstrating that its event contracts based on the outcome of live events are swaps that fall within the CFTC’s exclusive jurisdiction. …
Crypto’s proposed reading of the statute knows no limiting principle because anything could be defined as an event. Although Crypto argues that Congress intentionally defined swaps broadly, the words Congress chose must have content. If everything can be defined as an event, the statutory words either have no meaning or have such a broad meaning that they would render superfluous other portions of the CEA’s definition of a swap.
Crypto’s position, that its live presentation event contracts are swaps, would sweep nearly all sports wagering into the CFTC’s exclusive jurisdiction even though the states historically have regulated gambling through their police power. According to Crypto’s arguments and self-certification to the CFTC,10 nearly every sports bet would be a transaction in which payment is dependent on the outcome of a sporting event and is associated with a potential financial, economic, or commercial consequence. That cannot be a proper reading of the statute because that would mean that all sports wagering must be done on a DCM, and not at casinos, as the CEA forbids nearly all swap dealing and trading unless done on a DCM, except for certain market participants, none of whom are casinos or the average sports bettor.
The factual distinctions Crypto makes between itself and a typical casino sports book do not distinguish Crypto’s event contracts from sports wagers at Nevada casinos when considered under the statutory definition of a swap. But casinos have openly operated sports books and accepted sports wagers on the outcomes of sporting events in this state and others both before and after the 2010 amendments to the CEA. And no one, including Congress and the CFTC, has suggested those bets are “swaps” that had to be conducted on a DCM. At the hearing I held on the pending motions, Crypto stated that the “CFTC has never taken the position and we have never taken the position that all gaming [wagers] are swaps regulated by the CFTC.” … But Crypto does not explain why that is not the necessary implication of its position. Because if the statutory definition of swaps covers contracts on the outcome of sporting events that have a potential financial or economic consequence, and all swaps must be done a DCM absent exceptions not applicable to casinos and the average sports bettor, then all sports betting must be done on a DCM.
Had Congress intended such a sea change in the regulatory landscape, it surely would have said so. See Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001) (“Congress, we have held, does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.”). The CEA’s language and legislative history show that Congress did not intend such a change and, to the contrary, did not want gambling to take place on CFTC-designated exchanges. …
“Pre-emption fundamentally is a question of congressional intent.” Eng. v. Gen. Elec. Co., 496 U.S. 72, 78-79 (1990). Congress did not intend for gaming to be conducted on DCMs, and it defined swaps and enacted the special rule to achieve this intent. Thus, based on the statutory language and Congressional intent, Crypto’s contracts on the outcome of live events are not “swaps” that fall within the CFTC’s exclusive jurisdiction in 7 U.S.C. §2(a)(1)(A). Crypto’s motions for judgment on the pleadings and for a preliminary injunction depend on its argument that the CFTC has exclusive jurisdiction over its event contracts as swaps on a DCM. Crypto is not likely to prevail on its argument that the CFTC has exclusive jurisdiction over Crypto’s event contracts, so I deny its motions for judgment on the pleadings and for a preliminary injunction.
You can see the entire opinion here:
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Prediction markets news roundup
MetaMask integrating with Polymarket (press release): “Later this year, in permitted regions, MetaMask’s exclusive integration with Polymarket will enable users to participate in onchain prediction markets directly within the MetaMask platform. Through this integration, users will be able to trade across a wide range of verticals, including sports, crypto, and politics, all within MetaMask.”
“Together, these developments mark MetaMask’s evolution from a wallet into the gateway to global, democratized finance. Each new feature expands what users can do with their financial assets: trade, earn, invest, speculate, and diversify, all while maintaining full self-custody. This strategic shift toward real-world utility, user incentives, and open access reinforces MetaMask’s mission to make advanced financial tools broadly available to anyone, anywhere.”
Kalshi’s weekend volume was down: There’s a ton of noise in Kalshi volume in the early days of sports betting, and it’s grown a lot since the start of football. But it’s still weird to see volume dip Saturday over Saturday and Sunday over Sunday, which are of course the big days for football trading/betting. Kalshi’s volume should be going up every week just by existing; that didn’t happen this week.
The college football drop has been relatively small, but trading is down each of the past two Saturdays.
The drop for NFL Sundays is starker, from $297 million two Sundays ago to $221 million this past Sunday. There were two Monday Night Football games this week, but that’s not enough to explain the entire drop. To wit, Kalshi saw $221 million in volume just on NFL moneylines the previous Sunday.
Here’s a visual look at the volumes in recent weekends:
You can trade on who the next football coach will be at Penn State after James Franklin was let go this week:
New podcast with Kalshi CEO (Twitter): Tarek Mansour went on a podcast with the co-founder of Blockworks.
Polymarket is promoting its US launch with ads on Twitter:
