CFTC Investigates Super Bowl Wagers Offered by Crypto.com and Kalshi

The U.S. Commodity Futures Trading Commission (CFTC) is reportedly investigating the legality of Super Bowl-related event contracts offered by Crypto.com and Kalshi, focusing on how these markets comply with existing derivatives regulations. According to a statement by a CFTC spokesman on February 3, the commission is continuing to review the contracts to ensure they meet regulatory standards.

The CFTC’s Scrutiny of Super Bowl Markets

The investigation centers on whether the Super Bowl futures contracts offered by Crypto.com and prediction platform Kalshi adhere to the rules governing derivatives. These contracts, which allow users to bet on various outcomes related to the Super Bowl, have raised questions about their compliance with regulations, particularly as both platforms have received attention for their use of derivatives in the context of sports betting.

The CFTC's review process began in December 2022, when Crypto.com announced plans to offer Super Bowl-related futures contracts. Crypto.com informed the CFTC on December 19 that it would begin trading these contracts starting December 23. However, according to reports from Bloomberg, the CFTC did not have time to assess the contracts before the Christmas holiday and the looming threat of a government shutdown.

The Clock is Ticking: Review Timeline and Enforcement

The CFTC, now under the leadership of Caroline Pham, faces a tight timeline. Since the commission must provide a 90-day review period for self-certified financial products, it will be unable to stop the trading of the Super Bowl contracts before the game on February 9. However, the CFTC still has the authority to take enforcement actions after the event has concluded, potentially banning the contracts.

The latest developments follow a January 27 announcement from the CFTC’s new leadership that it would begin focusing on emerging issues within the derivatives market, including those involving prediction markets and sports betting.

Kalshi’s Super Bowl Market and Growing Trading Volume

Kalshi, which launched its “Kansas City vs. Philadelphia” Super Bowl market on January 24, has seen significant trading activity, with over $2.4 million in volume as of early February. Kalshi is also offering markets on which companies will run Super Bowl ads, attracting nearly $1.5 million in trading volume.

Additionally, the announcement from Robinhood Derivatives on February 3 that it would partner with Kalshi to offer Super Bowl-related bets further highlights the growing interest in prediction markets tied to major events.

The Rise of Prediction Markets

Prediction markets like Kalshi and Crypto.com allow users to place bets on a wide variety of events, ranging from sports outcomes to political predictions and even social media activity. These platforms are gaining popularity globally, with Polymarket—another blockchain-powered prediction market—having seen over $3.6 billion worth of bets placed on the U.S. presidential election in 2020.

As the CFTC continues its investigation, the growing popularity of prediction markets raises important questions about how regulators will approach these emerging financial products. While many of these platforms rely on blockchain technology to provide transparency and efficiency, they are still subject to the regulatory frameworks that govern traditional financial markets.

The Future of Prediction Markets

While the CFTC’s investigation into the legality of Super Bowl wagers may be a one-off event, it highlights the broader challenges and opportunities faced by prediction markets as they continue to evolve. With increased scrutiny from regulators, platforms like Crypto.com and Kalshi will likely need to navigate an evolving regulatory landscape, particularly as sports betting and prediction markets become more mainstream.

As the CFTC evaluates whether these markets comply with derivatives regulations, the outcome of the investigation could have significant implications for the future of prediction markets and their role in the broader financial ecosystem.