New Jersey has no right to ban Kalshi's prediction market, US appeals court rules
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Just 0.04% of accounts on the Polymarket platform captured over 70% of all profits, translating to a staggering $3.7 billion—data that sheds new light on the controversial prediction market. A U.S. appeals court has just ruled that the state of New Jersey does not have the right to ban the operations of the Kalshi platform, determining that oversight of such instruments falls under the federal Commodity Futures Trading Commission (CFTC) rather than local gambling regulators. The judges sided with the argument that Kalshi's sports betting offerings are, in fact, financial swaps rather than traditional gambling. This decision sets a powerful precedent for the entire financial technology sector and data-driven markets. For global users, it signals a green light for the further development of platforms where one can bet on almost anything: from election results and armed conflicts to local sporting events. Although critics point to the massive scale of insider trading and similarities to services like DraftKings, support from the CFTC and the political ties of platform owners to Donald Trump’s inner circle suggest that prediction markets will become a permanent fixture of the digital investment landscape. The ruling drastically limits the room for maneuver for local authorities who attempted to combat the phenomenon under the guise of fighting illegal gambling.
The decision of the 3rd US Circuit Court of Appeals regarding the Kalshi platform is a turning point for the entire prediction markets sector. The court ruled 2-1 that the state of New Jersey does not have the authority to regulate or prohibit Kalshi's activities, even in the area of betting on sporting events. This verdict de facto strips state regulators of control over a new wave of digital financial instruments, shifting full jurisdiction into the hands of the Commodity Futures Trading Commission (CFTC).
The dispute, which reached its conclusion in federal court, began in 2025 when New Jersey sent Kalshi a cease and desist order. State authorities argued that the platform violated a local ban on betting on academic sports competitions. Kalshi responded with a legal offensive, pushing a narrative according to which their sports contracts are not gambling, but so-called swaps — a type of derivative financial instrument. The Court of Appeals agreed with this interpretation, finding that the specific nature of these contracts places them in the sphere of investments regulated by the CFTC, rather than in the category of traditional bookmaking.
A political umbrella over prediction markets
Kalshi's victory coincides with an extremely favorable political climate in Washington. The CFTC is currently headed by Michael Selig, appointed by President Donald Trump. Selig does not hide his enthusiasm for platforms such as Kalshi or Polymarket, describing them as "exciting products." Such support at the federal level creates a unique protective barrier for a sector that just a few years ago balanced on the edge of legality.
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The connections between prediction markets and the highest levels of power are deeper than they might seem. Donald Trump Jr. serves as a paid advisor to Kalshi and an unpaid advisor to Polymarket. Furthermore, Truth Social, managed by Trump Media and Technology Group, plans to launch its own platform of this type. In this context, the states' fight for the right to regulate these markets becomes not only a legal dispute but also a political clash for control over a powerful new financial tool.
Speculation without borders: from sports to military invasions
Modern prediction markets are ecosystems where users can bet on almost any event with an uncertain outcome. The thematic range is striking — from local track and field competitions to election results, and even dark forecasts regarding deadly military invasions. It is this versatility that arouses the greatest resistance from regulators such as Jennifer Davenport, the Attorney General of New Jersey, and judges issuing dissenting opinions.
- Broad scope: The ability to monetize knowledge (or speculation) regarding armed conflicts and geopolitics.
- Legal status: Defining bets as "swaps," which exempts them from state gambling regulations.
- Market dominance: The New Jersey ruling sets a precedent for other states like Arizona, Connecticut, or Illinois.
Judge Jane Richards Roth, who disagreed with the majority verdict, pointed out a significant problem in her justification: Kalshi's offering is in practice "virtually indistinguishable" from products offered by bookmaking giants such as DraftKings or FanDuel. Despite this, thanks to the "financial instrument" label, Kalshi bypasses restrictions that traditional sports betting must comply with.
The shadow of insider trading and capital concentration
Although prediction markets are presented as tools for aggregating collective intelligence, data from blockchain analysis casts a shadow on their transparency. In the case of Polymarket, analysts from DeFi Oasis pointed to a frightening degree of profit concentration: just 0.04% of accounts generated over 70% of total profits, which translates to an amount of $3.7 billion. Such disparities suggest that the market is dominated by players with access to inside information.
Suspicions of insider trading on an extreme scale intensified after a series of suspicious bets and massive payouts related to US and Israeli military strikes in Iran, as well as a brief US invasion of Venezuela. The precision with which some players bet on these critical geopolitical events calls into question the ethics and security of platforms that allow profiting from armed conflicts without real oversight over who is trading and on what basis.
Federal offensive against the states
The ruling in the New Jersey case is just the beginning of a broader battle. The CFTC under Selig's leadership has moved to counterattack, suing Arizona, Connecticut, and Illinois in connection with their attempts to enforce local regulations against prediction markets. The strategy is clear: unification of oversight at the federal level and cutting off state claims that treat Kalshi or Polymarket as illegal gambling operations.
"This is a great victory for the entire industry," – briefly commented Tarek Mansour, CEO of Kalshi.
Transforming sports betting into swap-type instruments is a legal masterpiece that opens the door to the unlimited expansion of prediction markets. If subsequent courts uphold this interpretation, the line between the stock exchange and the casino will be permanently blurred. This industry is ceasing to be a niche curiosity for crypto enthusiasts and is becoming a full-fledged, albeit controversial, element of the global financial system, protected by political influence and federal regulations.
Maintaining the current course by federal courts will lead to the marginalization of state gaming commissions. In the face of support from key administration figures and the growing capitalization of markets like Kalshi, state gambling regulations may become an anachronism. The real challenge, however, will not be the fight against "illegal gambling," but the attempt to master a giant speculative market where military and political information becomes a billion-dollar commodity, available to a narrow elite with knowledge inaccessible to the general public.
