More regulatory challenges could be coming to prediction markets, with Senator Ted Cruz preparing legislation that would back U.S. states. Cruz’s proposed bill would grant states authority over certain prediction market contracts, changing the regulatory landscape in the industry.
While the bill has not yet been passed, it could threaten how big prediction market players like Kalshi and Polymarket operate in the United States. The proposed bill could keep federally regulated prediction markets from offering event contracts dealing with gambling activities, barring approval from state or tribal decision-makers.
Ted Cruz Eyes State Power Over Prediction Markets
The proposed legislation is expected to be ready after the 2026 midterm elections, giving prediction markets a loose timeline of when they should anticipate significant change.
Cruz’s proposal would tackle the dispute involving prediction markets and their battle against U.S. state lawmakers. The two sides haven’t agreed on definition or operation for prediction markets, compared to current guidelines and restrictions attached to tribal casinos and online sportsbooks.
While federally backed by the CFTC, prediction markets are slowly losing battle after battle with individual states. Many U.S. states simply don’t allow gambling and view prediction markets as sportsbooks. Others do allow gambling, but feel Kalshi and other prediction market sites should abide by sports betting laws within each respective state.
Prediction Markets Face Increase Regulatory Pressure
Ted Cruz’s prediction market bill is just another obstacle in a long line of them for heavy-hitters like Kalshi and Polymarket. They’re the companies that are drawing the ire of U.S. states and tribal leaders, but others like Novig (especially due to their “just sports” focus) could end up feeling the heat, just the same.
That has certainly been the case over the past several months, with regulatory battles booting top prediction market sites out of Washington, Michigan, and other states. Ongoing battles stem from numerous other U.S. states, and Cruz’s bid to transfer power back to state lawmakers figures to complicate matters even more.
This isn’t a new development in terms of Kalshi and other prediction market platforms facing resistance, of course. The CFTC has backed them throughout this process and defended its own authority, but the states want more control over what prediction markets are allowed to do and politicians like Cruz are working hard to grant them that power.
Clearer Regulation Could Help Prediction Markets
While Cruz’s bill and ongoing legal battles seem discouraging at first glance, regulatory clarity may ultimately be a net positive. Sure, immediate challenges would present themselves, but establishing clearer boundaries industry wide could reduce overall legal concern.
The negativity involved refers to the undying stance of U.S. states, however. Most states either want prediction markets fully gone due to not allowing anything remotely gambling-related, or they want them officially classified as sportsbooks.
The question in play is if lawmakers can set up a regulatory framework that works for both sides, without actually forcing prediction markets to fully bend the knee.
The Trade Handle Prediction Markets Take
If all parties can come to a compromise, there is an attractive future filled with growth, stronger compliance procedures, and elite level consumer protections. The downside, of course, is prediction markets have to exit more states, or discontinue certain event contract offerings.
Regulatory changes aren't inherently negative. Kalshi has been loud and clear about wanting to be a champion of regulation, placing user safety, transparency, and product integrity at the forefront.
The problem is when Cruz and U.S. states demand the ability to control something that isn’t theirs. Moreover, prediction markets have already been approved federally.
Granting U.S. states the power to dictate what prediction markets do on any level is a dangerous precedent. However, the regulatory attention these companies are getting at the very least signal a surging industry with serious long-term potential.