Will Congress Take Control of Crypto and Election Betting?

As the crypto market evolves, regulatory challenges are becoming increasingly pressing. U.S. Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam has highlighted the urgent need for Congress to establish clearer guidelines for both cryptocurrency and election betting. He argues that without these frameworks, regulators like the CFTC are left “handcuffed,” unable to fully protect investors or maintain market integrity.

The Regulatory Void in Crypto

Behnam's concerns about cryptocurrency regulation are not new, but the stakes are higher than ever. The rapid growth of digital assets, including Bitcoin and decentralized finance, has outpaced existing regulatory structures. Several legislative efforts, such as the Financial Innovation and Technology for the 21st Century Act (FIT 21), aim to clarify the status of digital commodities. Although FIT 21 passed the House earlier this year, progress in the Senate has stalled.

One of the key challenges remains how to define decentralization and determine whether an asset is classified as a commodity or security. This ambiguity is compounded by the actions of the U.S. Securities and Exchange Commission (SEC), whose chair, Gary Gensler, is known for his skeptical stance on crypto. Critics argue that his policies have hampered the industry's growth.

With the end of the legislative year approaching and a federal budget deadline looming, Behnam does not anticipate meaningful action from Congress until 2025, when a new Congress and possibly a new president may bring fresh legislative opportunities.

The Complex Landscape of Election Betting

In addition to crypto, Behnam has raised alarms about the burgeoning election betting market, particularly platforms like Kalshi and Polymarket. Kalshi, which allows users to bet on election outcomes, found itself in a legal battle with the CFTC, which claimed that such contracts could undermine public trust in elections. The situation escalated when Kalshi sued the CFTC, ultimately winning a court ruling that challenged the agency's authority.

Despite the CFTC's appeal, Kalshi has resumed betting on the 2024 U.S. presidential election, drawing significant attention. The market is booming, with Kalshi generating over $47 million in trading volume for its main election contract. However, Polymarket, with its more expansive user base, has surpassed $2.16 billion in total trading volume.

Critics like billionaire Mark Cuban have voiced concerns about the potential for foreign influence and market manipulation in these betting markets. In contrast, supporters like Peter Thiel argue that such platforms provide valuable insights into market sentiment.

The Future of Betting Markets

As the U.S. election cycle intensifies, prediction markets like Kalshi and Polymarket are witnessing remarkable activity, despite ongoing scrutiny. Kalshi's regulatory compliance allows it to limit participation to U.S. nationals and permanent residents, whereas Polymarket operates in a more ambiguous offshore market, attracting a global audience.

Interestingly, both platforms show similar predictions regarding election outcomes, with Donald Trump leading over Kamala Harris. Kalshi indicates a 59% chance for Trump compared to Harris’s 41%, while Polymarket assigns Trump a 64% chance.

As these platforms continue to thrive, they will likely remain at the forefront of both market activity and regulatory discussions. The next steps Congress takes could significantly impact the future landscape of both cryptocurrency and election betting. Will lawmakers act decisively, or will these markets continue to operate in a regulatory gray area?