A Nevada federal judge has dealt a setback to Crypto.com in its ongoing legal battle with state regulators regarding sports prediction markets. The judge denied the company’s request for an injunction to prevent the Nevada Gaming Control Board from applying its regulations to Crypto.com’s prediction markets. This ruling contrasts sharply with an earlier decision that favored Kalshi, another player in the prediction market space, which was also heard by the same judge, Andrew Gordon.
In making his decision, Judge Gordon ruled that Crypto.com’s sports contracts do not meet the definition of “swaps” under federal law, specifically due to a distinction between “outcomes” and “occurrences.” Crypto.com, like Kalshi, had argued for exclusive regulation under the jurisdiction of the Commodities Futures Trading Commission (CFTC), asserting that such regulation would protect them from state-level oversight.
A spokesperson for Crypto.com expressed confidence in appealing the decision, emphasizing their stance that their contracts qualify as swaps under CFTC jurisdiction. “When two cases on the same issues before the same judge result in two completely different rulings, it guarantees a different result at the appellate level,” the spokesperson stated. As part of the wider dialogue surrounding this case, a member of the Nevada Gaming Control Board celebrated the ruling, proclaiming at a recent meeting that “the gig is up” for such prediction market platforms.
However, opinions among legal experts vary sharply regarding the prospects of the ruling being upheld on appeal. Aaron Brogan, a cryptocurrency and financial products attorney, criticized Judge Gordon’s reasoning as “completely fanciful,” predicting that the ruling will fail on appeal. He contended that the legal distinction drawn by the judge lacks support and that the definitions related to swaps are more nuanced than the judge has articulated.
The full details of the hearing and the ruling will not be publicly available until January, although initial discussions from the hearing have circulated online. These discussions revealed the judge’s reasoning that Crypto.com’s contracts could not be classified as “swaps” under the Commodity Exchange Act (CEA) due to their nature of being based on outcomes of sporting events rather than occurrences.
Despite the ruling against Crypto.com, prediction market platforms have been experiencing growth. Last week, the combined trading volume for platforms, including Kalshi and Polymarket, approached $1.5 billion, signaling robust interest in the sector, especially in the lead-up to the 2024 U.S. presidential election. Kalshi, which became the first fully regulated prediction market in the U.S., benefitted from the CFTC’s decision to drop its legal challenge against the company’s offerings of sports event contracts.
As the regulatory landscape evolves, various states, including Maryland and New Jersey, are also engaging in legal actions against prediction markets. This has heightened the stakes for companies in this sector as they navigate the complexities of compliance and regulatory approval. Crypto.com stands out as a unique entity, recently securing a comprehensive suite of licenses from the CFTC, including a designated contract market license, following its acquisition of North American Derivatives Exchange.
In collaboration with Underdog Sports, Crypto.com has begun to expand its offerings in sports prediction markets, aiming to capture a share of this burgeoning market, which industry reports estimate could grow exponentially in the coming years.
