In a significant legal setback for cryptocurrency platform Crypto.com, a Nevada judge has ruled against its request for a preliminary injunction to block the Nevada Gaming Control Board (NGCB) from enforcing a cease-and-desist letter regarding its sports event contracts. Judge Andrew Gordon’s decision, which states that the contracts in question are not classified as swaps, is expected to have far-reaching implications not only for Crypto.com but also for the broader prediction market sector across the United States.
In a move critical to the future of prediction markets, Judge Gordon’s interpretation that sports event contracts do not fall under the jurisdiction of the Commodity Exchange Act (CEA) means these markets are not entitled to the regulatory protections typically afforded to swap trading. This ruling contrasts with his earlier decision favoring competitor Kalshi, where he granted a preliminary injunction based on the premise that Kalshi’s sports event contracts were indeed classified as swaps. The differing outcomes of these cases point to a burgeoning legal gray area for these types of contracts in the evolving landscape of cryptocurrency and betting.
Crypto.com had sought this injunction following the NGCB’s directive to cease operations related to its sports contracts, citing incompatibility with state laws governing gaming. This ruling is a potential blow to the company, and an appeal is anticipated, similar to Kalshi’s course of action in Maryland, following its own courtroom loss. The decision may affect the legitimacy of business models predicated on the concept of these contracts being classified as swaps, as such a classification typically allows them to be regulated by the Commodity Futures Trading Commission (CFTC).
Legal expert Daniel Wallach has argued that if Judge Gordon’s ruling stands, it could severely undermine the operational viability of prediction markets that rely on the categorization of sports event contracts as swaps. “If sports event contracts do not qualify as ‘swaps’ under the CEA, then the entire business model falls apart,” Wallach noted, emphasizing the potential chaos that could ensue for the sector.
The impact of this ruling may compel prediction market operators to reconfigure their offerings in certain jurisdictions, which might include restricting access to their platforms from states that have outlawed such markets or requiring compliance with local gaming laws.
In related legal battles, Robinhood and Kalshi are also challenging cease-and-desist letters from the NGCB in court. While an outcome for Robinhood remains uncertain, the ruling against Crypto.com could set a crucial precedent. Kalshi is actively pursuing its case in Maryland after an initial ruling denied its request for a preliminary injunction, which argued that its regulatory oversight by the CFTC should exempt it from state gambling laws. Kalshi has since appealed that decision.
Furthermore, Kalshi is embroiled in ongoing legal disputes in New Jersey, where it is fighting a cease-and-desist order from the state’s Division of Gaming Enforcement, and in Massachusetts, which has levied a lawsuit asserting that Kalshi’s offerings amount to illegal sports gambling. The state’s Attorney General, Andrea Joy, aims to compel Kalshi and similar prediction market entities to obtain official licensing to operate within Massachusetts.
As the landscape of prediction markets continues to evolve amidst varying state regulations, the rulings from Nevada and other jurisdictions will be critical in shaping the industry’s future.
