Key Takeaways
- CFTC ordered Kalshi to keep operating after its Aug. 1 market-emergency notice.
- The order says forced liquidation of a bitcoin position could trigger other unwinds.
- A Connecticut judge rejected the swaps premise in a ruling docketed a day earlier.
Bitcoin Example Broadens Fight Beyond Sports Contracts
Countering New York’s suit against the prediction market, the CFTC on Aug. 11 directed Kalshi to keep running its exchange under its normal practices and the Commodity Exchange Act’s Core Principles. The emergency order followed Kalshi’s Aug. 1 warning that the state’s requested restraining order could stop it from offering event contracts from New York altogether.
The commission said New York’s enforcement action amounted to a “major market disturbance,” calling the threat of a sudden shutdown “existential” for regulated markets, traders, and its own jurisdiction. Because Kalshi is headquartered in New York, the CFTC said a ban on operating “within or from” the state could stop the exchange from serving anyone, anywhere.
That claim rests on Kalshi’s 2020 registration as a federally designated exchange, which the commission says makes its event contracts swaps under its exclusive control. Multiple states reject the premise, and so did a federal judge. In an opinion signed Aug. 7 and docketed Aug. 10, U.S. District Judge Vernon D. Oliver held that Kalshi’s sports contracts were never swaps, so the CFTC’s jurisdiction never attached. He added that even if they were swaps, federal law would not override Connecticut’s gambling statutes. Connecticut is one of nine states the CFTC has sued to defend that jurisdiction.
The order listed contracts on Federal Open Market Committee moves in the federal funds rate, Strait of Hormuz traffic, state droughts, recession timing, and whether a crypto asset will hit a specified price among the products that traders could lose. It then described a trader holding a Kalshi position on bitcoin’s price at the end of 2026. A forced liquidation, the commission reasoned, could wreck that strategy and force the trader to unwind bitcoin and other holdings. An arbitrageur with an opposite position elsewhere could be left with one-way exposure he never wanted. Whether such event contracts count as swaps is the question courts have split on all year.
State by state, the answers keep coming back differently. Two weeks earlier, U.S. District Judge Katherine Menendez identified contracts on a U.S. Senate election, the World Cup winner, and the reopening of Strait of Hormuz traffic as likely to meet the federal swap definition while blocking Minnesota’s felony ban. She drew the line elsewhere, finding that markets on a reality-television winner and on words spoken by World Cup announcers lacked the financial consequence the statute requires.
The commission also warned that shutdown risk would price a premium into every event contract, and a further premium into those listed by a New York exchange, creating arbitrage driven by enforcement risk rather than the events being traded. If New York could use gambling law to ban these products, it argued, it could target any CFTC-regulated derivative, futures included.
Chairman Michael S. Selig said in the accompanying press release that New York wanted event-contract derivatives to “waste away under its iron curtain of state gaming laws.” A Kalshi spokesperson made a parallel argument to The Block, saying that if Nasdaq shut down in New York, liquidity would dry up and trading would get harder for people across the country.
The New York petition seeks a permanent injunction, an accounting, restitution, disgorgement, damages, triple Kalshi’s gain, and $100,000 for each unauthorized sports-wagering offer. Separately, the CFTC order cites a filing in the removed federal case seeking at least $36 billion in compensatory damages. Notably, that total does not appear anywhere in the verified petition itself, despite reporting to the contrary. The petition says Kalshi holds no New York gaming license, lets people aged 18 through 20 open accounts against a state minimum of 21, and has reported a $22 billion valuation on $178 billion in annualized volume. Kalshi’s chief executive has blamed casino-industry lobbying for the suit.
The emergency order was not the CFTC’s first move against New York. The commission already has an injunction motion pending against the state, and New York filed Judge Robert J. Shelby’s Aug. 4 decision against that motion within a day of its release. Shelby granted Utah summary judgment, calling Kalshi’s central statutory argument an implausible reading of what Congress intended. The New York fight predates all of it: the state Gaming Commission issued Kalshi a cease-and-desist on Oct. 24, 2025, and the exchange sued three days later in the Southern District of New York, which turned it down on July 7 and again on July 27.
The order cites the CFTC’s July 14 Michigan intervention as its only precedent, and that one arrived too late to work. There, the commission stayed Kalshi’s emergency rule and told it to fulfill open trades after Ingham County Circuit Judge Rosemarie Aquilina ordered that Michigan positions be voided, canceled, and refunded. Kalshi head of enforcement Robert DeNault responded publicly the same night, stating:
“We already acted and unwound the trades, as the Michigan court order required us to do. We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations. We did not have a choice.”
Aquilina’s order also set a geofencing deadline that falls today, Aug. 12, carrying fines of $500,000 a day from tomorrow. The Aug. 11 order settles none of New York’s eight claims, and the commission conceded the case has moved to federal court, where remand fights may drag. Gambling attorney Daniel Wallach has noted that the expected Tenth Circuit appeal in the Utah case would put prediction markets before seven of the 13 federal appellate circuits, the kind of spread that typically produces a split ripe for Supreme Court review.
