New York is joining the battle between the federal government and states over who will regulate increasingly popular prediction marketplaces like Kalshi.
State Attorney General Letitia James last week sued two cryptocurrency exchanges that let users trade on sporting events, saying that their prediction market offerings amounted to sports betting that New York should otherwise regulate.
The federal Commodity Futures Trading Commission responded Friday by suing the state, saying New York officials are improperly infringing on Washington’s exclusive right to regulate these exchanges.
It’s part of a national battle involving more than a dozen states that has intensified as President Donald Trump’s administration encourages the growth of the platforms. The central legal questions at play are whether the offerings on prediction markets amount to gambling, which is traditionally regulated by states — and, if they don’t, who can best oversee them and police abuses like insider trading.
“This is a turf battle,” said Robin Hanson, an economics professor at George Mason University who has been studying prediction markets since the 1980s. “Sometimes it's better to have centralized regulations so that everybody can deal with the same regulation instead of having 50 different regulatory regimes. On the other hand, it's sometimes better to have competition so that we can try variety and see what works best.”
Prediction markets let their users buy a contract that answers a given question, such as who will win an election or whether the temperature will hit a certain level on a day. Critics say this is gambling by another name and without the safeguards, including age limits.
But supporters of prediction markets say they’re different from gambling because the probability of a certain outcome — expressed as a price — changes over time and is traded among users. They say the markets are the most accurate predictors of future events, which is valuable for making decisions.
In court, more than a dozen states are battling Kalshi and Polymarket, the biggest players in the prediction market space, over alleged infringement of state gambling regulations. The federal commission has weighed in against states, and won a victory this month when a federal judge barred Arizona from enforcing gambling restrictions against Kalshi.
The New York State Gaming Commission last year sent Kalshi a cease-and-desist letter, saying its sports offerings weren’t licensed. Kalshi is fighting the matter in a federal lawsuit.
On Wednesday, James sued Coinbase and Gemini — two cryptocurrency companies that have launched prediction markets — making similar allegations.
“Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution,” James said. Her lawsuit noted that while the minimum age to gamble online in New York is 21, prediction market users must be only 18.
Gemini and Coinbase both filed briefs seeking to move James’s suit to federal court, arguing they aren’t subject to state regulation.
“Coinbase will continue to fight for the federal oversight of these markets that Congress intended,” Paul Grewal, the company’s chief legal officer, wrote on social media.
In suing New York, the federal commission said the new lawsuits and cease-and-desist letters stepped on its toes.
“The CFTC will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets,” Commission Chairman Michael Selig said in a statement.
James, in a joint statement with New York Gov. Kathy Hochul, said they were within their rights.
“Once again, this administration is prioritizing big corporations over consumers and New Yorkers’ best interests,” the Democratic officials said, referring to the Trump administration. “New York’s gambling laws are designed to protect consumers, whether they are placing bets in a prediction market or a casino.”
Some New York lawmakers are pushing to grant the state’s Department of Financial Services explicit oversight authority over prediction markets.
State Sen. Jeremy Cooney said he grew concerned about the platforms after Kalshi members traded $138 million related to last year’s New York City mayoral election. The Rochester Democrat said he’s worried New York consumers could suffer major losses on the platforms, and doesn’t think federal regulators have been active enough in bringing insider-trading cases.
“I believe that in the absence of leadership at the federal level, we as the financial capital of the world have an opportunity to set up a regulatory framework, to just make sure that consumers — New Yorkers — are protected in these products,” said Cooney, who sponsors a bill aimed at regulating prediction marketplaces.
Kalshi is taking the New York push seriously enough to hire the lobbying firm Brown & Weinraub to monitor the legislation, state records show. Kalshi spokesperson Elisabeth Diana said it would stifle innovation if the company had to abide by a patchwork of state regulations.
“I think the problem here is that this is an emerging technology and there are questions about any emerging technology,” Diana said. “We're willing to take the time to make sure people understand the differences.”
Polymarket didn’t respond to a request for comment.
Cooney said “the cat’s out of the bag” with prediction markets, but he doesn’t trust the federal government to police them. The state senator noted Donald Trump Jr., the president’s son, is an adviser to both Kalshi and Polymarket.
Until last week, the Commodity Futures Trading Commission hadn’t brought any public enforcement actions. It acted in parallel with federal prosecutors in Manhattan, who on Thursday charged a U.S. soldier involved in planning the February raid that captured Venezuelan President Nicolás Maduro. The soldier allegedly made bets on Polymarket that Maduro would be ousted.
Selig said in a statement that the case showed his agency has zero tolerance for fraud on the platforms. The agency said insider trading on prediction markets is banned by a 90-year-old federal law.
In addition to markets looking at political races and world events, Kalshi and other platforms have large sections on the outcomes of sporting events, as well as “prop” bets about the number of home runs in a given baseball game.
A spokesperson for the federal commission said state-regulated gambling includes traditional casino games like roulette or blackjacks, the lottery and a sports book. The spokesperson said such gambling involves a “house” that controls bets and sets odds, not positions that are swapped among traders.
Hochul hasn’t taken a position on Cooney’s bill. She issued an executive order Wednesday banning employees of state agencies and authorities from trading on activities about which they may have non-public information from their jobs.
“New York State requires the highest standard of public integrity from its civil servants,” Hochul wrote in the order. “Irrespective of any new technologies.”
