“The limited-government approach to this prediction market issue is simple: protect rights and remedy real, objective harms.”
The following has been adapted from an excerpt of the Frontier Weekly Newsletter written by Tanner Avery for the September 24th edition.
This week, Montana Attorney General Austin Knudsen and Kalshi, a prediction market company, agreed to put their legal fight on hold while a larger federalism dispute plays out in the courts.
For those who haven’t been following it, Montana gambling regulators and Knudsen have been in a legal tussle with Kalshi, an online prediction-market exchange. Kalshi lets users buy and sell contracts tied to whether real-world events happen, from elections and economic indicators to sporting events.
The legal dispute revolves around who regulates online prediction markets, states or the federal government?
Montana and other states have argued that prediction market activities amount to gambling, traditionally regulated by states. Kalshi and others argue that prediction markets offer federally regulated futures contracts under the Commodity Exchange Act. The federal CFTC, meanwhile, has asserted federal jurisdiction and is actively policing prediction market harms including fraud, manipulation, and misuse of nonpublic information.
That disagreement is working its way through the courts, and will likely ultimately require the U.S. Supreme Court to review and decide.
While this federalism fight gets worked out by courts, the limited-government approach to this prediction market issue is simple: protect rights and remedy real, objective harms.
Stop people from stealing, cheating, manipulating markets, or rigging the game. Don’t stop adults from risking their own cash.
State policymakers should ask whether harms are already being policed. If they are, the job is done.
In the case of prediction markets, the CFTC is already addressing fraud, manipulation, insider trading etc. Stacking state gambling regulation on top risks duplicating and complicating enforcement rather than filling a real gap.
Montana’s agreement with Kalshi preserves the status quo for now. Until the courts settle the federalism question, we think state policymakers should mostly avoid attempts to extend gambling regulation to prediction markets when the real harms are already being policed by the feds. Doing so prematurely would create another regulatory layer, muddy the waters in the meantime, and add another enforcement regime Montana taxpayers would have to pay for.
