The U.S. government has officially reversed its previous stance on banning prediction market companies such as Kalshi and Polymarket from certain activities, with U.S. Commodity Futures Trading Commission Chairman Mike Selig on Wednesday moving to withdraw proposed 2024 event contract rules and rescinding earlier recommendations that he said had confused the industry.
In 2024, the derivatives regulator proposed a rule that would ban contracts based on the outcome of political events, legally equating them with illegal contracts about war, terrorism and assassinations, saying it was “contrary to the public interest.” The rule never reached its final stages before President Donald Trump returned to the White House and appointed new CFTC leadership. In the same year, the U.S. Commodity Futures Trading Commission (CFTC) allowed the launch of prediction markets based on political events after losing a court case regarding Kalshi’s proposed product.
Selig, the agency’s recently appointed chairman, has now cleaned up and issued a small advisory on certain contract markets in September.
“The 2024 Event Contracts proposal reflects the previous administration’s outright ban on political contracts ahead of the 2024 presidential election,” Selig said in a statement. “The Commission is withdrawing the proposal and will move forward with a new rulemaking based on a reasonable and coherent interpretation of the Commodity Exchange Act to promote responsible innovation in our derivatives markets consistent with Congressional intent.”
Selig’s action comes as no surprise and comes on the heels of comments he made last week that hinted at what’s to come. He said he had “directed CFTC staff to continue drafting event contract rulemaking.”
The Trump administration’s support for prediction markets has paved the way for increased interest from companies like Coinbase looking to enter the space, or Cboe’s tangential pursuit of similar products.
He said Selig’s advisory opinion, which was withdrawn in September, was meant to warn platforms about litigation issues, but it “inadvertently caused confusion and uncertainty for our market participants.”
The CFTC is expected to be a central voice in the regulation of digital assets, where prediction markets have overlapping interests. Selig is working on a series of new initiatives as Congress negotiates its Cryptocurrency Market Structure Act, which, among other purposes, would establish the CFTC as the legal regulator of cryptocurrency spot markets that do not involve securities.
Read more: SEC and CFTC chairs push for united front to pave way for cryptocurrencies