Kalshi Challenges New York Over Sports Prediction Market Regulations

Kalshi, a federally regulated derivatives exchange, has initiated legal proceedings against New York in the United States District Court for the Southern District of New York. The lawsuit seeks to halt the state’s enforcement actions aimed at shutting down Kalshi’s sports prediction markets, according to CryptoNews.

The conflict arose after the New York State Gaming Commission sent Kalshi a cease-and-desist letter on October 24, 2025, alleging that the exchange’s sports-related contracts breached state gambling laws. The commission demanded an immediate cessation of operations within the state, threatening civil penalties and criminal action.

Federal Authority Clashes With State Gambling Oversight

Kalshi’s defense is grounded in its designation as a Commodity Futures Trading Commission (CFTC)-approved contract market, a status granted in 2020 after meeting rigorous regulatory standards. The exchange argues that the Commodity Exchange Act, under which it operates, was designed by Congress to preempt state regulation and avoid a fragmented legal landscape across the United States.

The New York regulators, however, contend that Kalshi’s contracts amount to sports wagering, requiring a state sports gaming license. They assert that the platform’s current operations constitute illegal gambling under state law.

Prediction Market’s Existential Threat

The outcome of this lawsuit could significantly impact the operation of prediction markets across state lines, as it questions the extent of federal preemption over state laws. The case also echoes similar legal actions in other states, such as New Jersey and Nevada, where entities like Robinhood are challenging state refusals to recognize federal rulings favoring Kalshi.

Kalshi warns that enforcing state-by-state restrictions could disrupt its operations and lead to substantial economic and reputational damage. The platform emphasizes that such restrictions could undermine its compliance with CFTC requirements, potentially threatening its status as a national exchange.

New York’s Growing Regulatory Tensions

This legal battle is part of a broader trend in New York, where state-level efforts aim to regulate emerging financial technologies, including cryptocurrencies. In August, legislation was introduced to impose a 0.2% excise tax on digital asset transactions, with the revenue intended for substance abuse prevention programs.

Globally, jurisdictions have varied in their approach to crypto regulation and taxation. For instance, the United Arab Emirates is developing a tax reporting framework, while Hong Kong is implementing a licensing regime to promote crypto industry growth.

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