CFTC Scraps Proposed Ban on Political and Sports Prediction Markets, Pledges New Regulatory Framework

In a decisive move that reshapes the future of prediction markets in the United States, the Commodity Futures Trading Commission (CFTC) has officially scrapped a Biden-era proposal that would have banned trading on political elections, sports outcomes, and war-related events.

The agency, under its new chairman Michael S. Selig, announced the withdrawal of the 2024 Notice of Proposed Rulemaking, calling it a "frolic into merit regulation" that overstepped the CFTC's core mandate. Simultaneously, the commission rescinded a 2025 staff advisory that had cautioned firms against sports-related event contracts. This dual action marks the clearest indication yet that the regulator aims to create a structured legal environment for prediction markets, rather than suppress them through outright prohibition.

Regulatory Reset and Legal Clarity

Chairman Selig, who assumed his role in December, framed the withdrawal as a necessary correction. "The 2024 proposal reflected a prior approach that ventured into merit-based regulation, notably with an outright ban on political contracts ahead of a presidential election," Selig stated. "Our path forward is to return to our roots under the Commodity Exchange Act and build a transparent, rules-based framework that provides certainty for operators and participants alike."

The CFTC will not finalize any rules based on the withdrawn proposal. Instead, it has committed to advancing a new rulemaking process specifically for event contracts. This initiative is part of a broader agency reset, dubbed "Project Crypto," undertaken in coordination with the Securities and Exchange Commission.

Market Growth Meets State-Level Resistance

The policy shift comes as prediction markets are exploding in popularity and complexity. Combined trading volume on leading platforms Polymarket and Kalshi surged to $37 billion in 2025, attracting major players like Coinbase, which recently entered the space via a partnership with Kalshi. Other exchanges, including Gemini and Crypto.com (via its spin-off OG), are also expanding their offerings.

However, this rapid growth has ignited fierce regulatory battles at the state level. Nevada recently filed an enforcement action against Coinbase, alleging its sports prediction products constitute unlicensed gambling. Coinbase is itself suing gaming regulators in Michigan, Illinois, and Connecticut over similar claims. The National Collegiate Athletic Association (NCAA) has also lobbied the CFTC, warning that college sports markets pose integrity risks to student-athletes and operate outside existing gambling safeguards.

In response to this friction, Selig directed CFTC staff to reassess the agency's role in pending federal court cases where jurisdictional questions are central. This suggests the CFTC may intervene to assert its exclusive authority over commodity derivatives, potentially pre-empting state gambling laws.

Analyst and Public Reaction

The decision has drawn mixed reactions from observers:

"This is a watershed moment for market-driven information aggregation," said Dr. Anya Sharma, a financial regulation professor at Georgetown University. "The CFTC is correctly distinguishing between illicit gambling and legitimate derivative contracts that hedge risk and reveal collective intelligence. A clear federal framework is long overdue."

"It's a full-scale surrender to crypto speculators and gambling interests," fired back Marcus Thorne, a senior fellow at the Consumer Protection Advocacy Group. "Calling these sports bets 'event contracts' is pure semantics. The CFTC is abdicating its responsibility and inviting a wave of fraud and addiction, all while undermining state laws and the integrity of our elections and sports."

"The legal certainty this promises is exactly what the industry needed to innovate responsibly," noted Rebecca Lin, CEO of a fintech consultancy. "Operators can now invest in compliance and product development with more confidence, knowing the federal regulator isn't planning to pull the rug out from under them."

While Chairman Selig did not provide a specific timeline for the new rules, he identified event contract regulation as a top priority. The industry will now watch closely as the CFTC drafts a framework that could define the legality and limits of prediction markets for years to come.

This report is based on original reporting by David Pokima at Cryptonews.com.