CFTC Chairman Michael Selig is drawing a line in the sand. In a statement flagged by Cointelegraph on February 17, Selig declared that the agency "will no longer sit idly by while overzealous states undermine federal jurisdiction over prediction markets," marking the sharpest escalation yet in a regulatory turf war that has already produced 19 federal lawsuits, a landmark Massachusetts court ruling, and a scramble among crypto-native platforms to figure out where they stand.
The statement builds on a four-part regulatory agenda Selig unveiled on January 29 at a joint SEC-CFTC "Project Crypto" summit, where he directed staff to withdraw a 2024 proposed rule that would have banned political and sports-related event contracts. That move signaled a clear pivot: the CFTC wants prediction markets to thrive under federal oversight, not die under a patchwork of state gambling laws.
Selig's Four-Part Agenda and the Federal Power Play
The January 29 announcement laid out the CFTC's strategy in four parts. First, staff were directed to withdraw both the 2024 proposed ban on event contracts and a 2025 advisory that had cautioned platforms about state-level enforcement risks. Second, Selig ordered new rulemaking to establish "clear, workable standards" for event contracts, acknowledging that the existing framework is "difficult to apply." Third, the CFTC will reassess its participation in pending federal court cases where jurisdictional questions are at issue, representing a shift from a passive let-the-courts-decide stance to an active defense of exclusive federal authority. Fourth, the agency will coordinate with the SEC to clarify definitional boundaries under the Dodd-Frank Act.
The language Selig used leaves little room for ambiguity. "Where jurisdictional questions are at issue, the Commission has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives," he stated at the summit, as documented by Sidley Austin.
In a subsequent Bloomberg interview on February 12, Selig added that the CFTC is focused on insider trading risks in prediction markets and has been in direct contact with both platforms and sports leagues to stay ahead of integrity concerns.
The Massachusetts Ruling That Changed Everything
The urgency behind Selig's posture traces back to January 20, when Suffolk County Superior Court Judge Christopher Barry-Smith granted a preliminary injunction barring Kalshi from offering sports-related event contracts to Massachusetts residents. The ruling was a landmark: the first time a U.S. court granted an injunction specifically targeting a CFTC-regulated platform's sports offerings.
Judge Barry-Smith rejected Kalshi's argument that CFTC oversight preempts state licensing requirements, calling it "overly broad." The court ruled that product function matters more than product label. If it walks like a sports bet and talks like a sports bet, Massachusetts says it needs a gambling license, regardless of what the CFTC calls it.
The ruling required Kalshi to implement statewide geofencing within 30 days, effectively shutting the platform out of Massachusetts for sports-related contracts. Massachusetts Attorney General Andrea Joy Campbell hailed the decision as a victory for consumer protection.
19 Lawsuits Across Three Fronts
Kalshi is now the defendant, plaintiff, or subject of 19 federal lawsuits, as reported by NPR. The cases break down across three distinct fronts.
Eight lawsuits come from state gaming commissions and tribal authorities accusing Kalshi of operating an unlicensed sports gambling platform. Six are offensive suits filed by Kalshi itself against state regulators, arguing that CFTC-regulated contracts fall outside state gambling jurisdiction. The remaining five are class-action complaints from individuals alleging that Kalshi's platform worsens gambling addiction.
The states pushing hardest against prediction markets include Massachusetts, Nevada, Ohio, and New Jersey. Nevada has issued enforcement actions. Senator Catherine Cortez Masto of Nevada has publicly criticized Selig for what she called "misleading" Congressional testimony, arguing that prediction markets constitute unlicensed sports betting and should be regulated as such.
The American Gaming Association, state regulators, and tribal leaders have formed an informal coalition opposing the CFTC's expansive claims, citing concerns about age verification gaps, responsible gaming failures, and integrity monitoring deficiencies.
Polymarket Joins the Fight
The battle is not limited to Kalshi. On February 10, crypto-native prediction platform Polymarket filed its own federal lawsuit against Massachusetts Attorney General Campbell and state gaming regulators. Polymarket cited the threat of enforcement as "immediate and concrete" following the Kalshi ruling, effectively asking a federal court to declare that CFTC-regulated on-chain contracts are not subject to state gambling laws.
The timing matters. As of mid-February, Polymarket has overtaken Kalshi in total 2026 volume projections for the first time in two years, with traders pricing in a 47% chance Polymarket leads the year compared to Kalshi's 34%. The regulatory uncertainty is visibly affecting domestic liquidity. Selig's concern that aggressive state enforcement could push the industry offshore appears to be playing out in real time.
What This Means for Crypto Markets
The prediction market fight is not happening in isolation. The jurisdictional question at its core, whether the federal government or individual states have ultimate authority over novel financial instruments, has direct implications for the broader crypto industry.
If the CFTC successfully asserts exclusive federal jurisdiction over event contracts, it establishes a precedent that could simplify compliance for other crypto products. Exchanges, DeFi protocols, and even crypto card issuers operating across multiple states currently navigate a patchwork of state money transmitter licenses, securities regulations, and consumer protection laws. A strong federal preemption ruling for prediction markets could influence how courts and regulators approach similar jurisdictional disputes in staking, lending, and tokenized assets.
Conversely, if states win and the patchwork approach holds, crypto companies face the prospect of 50 different regulatory regimes for products the CFTC considers within its domain. That fragmentation has already pushed Polymarket's operations largely offshore, and it could accelerate the trend across other crypto verticals.
The OKX Malta licensing story from earlier this month illustrates the contrast: in Europe, MiCA provides a single regulatory framework. In the U.S., the CFTC-vs-states battle is the latest chapter in a jurisdictional mess that the CLARITY Act was designed to resolve.
FAQ
What did CFTC Chair Selig actually say about states? Selig stated that the CFTC "will no longer sit idly by while overzealous states undermine federal jurisdiction over prediction markets." He has directed staff to actively defend the agency's exclusive jurisdiction in pending federal court cases, a shift from the prior hands-off approach.
How many lawsuits is Kalshi facing? Kalshi is involved in 19 federal lawsuits: eight from state gaming commissions and tribal authorities, six offensive suits Kalshi filed against state regulators, and five class-action complaints from individuals alleging the platform worsens gambling addiction.
Does this affect crypto platforms like Polymarket? Yes. Polymarket filed its own federal lawsuit against Massachusetts on February 10, citing the Kalshi ruling as creating an "immediate and concrete" enforcement threat. The outcome will likely determine whether on-chain prediction markets can operate domestically without state gambling licenses.
Why does this matter for the broader crypto industry? The jurisdictional question at the heart of this fight, whether federal agencies or states control novel financial instruments, has implications beyond prediction markets. The outcome could influence how staking, DeFi lending, tokenized assets, and crypto card products are regulated across the U.S.
Overview
CFTC Chairman Michael Selig has escalated the federal government's fight to control prediction market regulation, warning states that his agency will defend its exclusive jurisdiction over event contracts. The statement comes as Kalshi battles 19 federal lawsuits across three fronts and Polymarket launches its own preemptive suit against Massachusetts. With the CFTC drafting new rules, states pushing enforcement actions, and crypto-native platforms caught in the crossfire, the prediction market jurisdiction battle is becoming a proxy war for how the U.S. regulates the entire crypto industry.
Recommended Reading
- The CLARITY Act Explained: What It Does, Why It Stalled, and What Happens Next
- OKX Secures EU Payments Institution License in Malta, Clearing the Path for Stablecoin Card Expansion Across 28 Countries
- White House Crypto Adviser Tells Banks to Stop Fighting Stablecoin Yield and Start Competing
