Crypto.com recently filed paperwork with the Commodities Futures Trading Commission (CFTC) to launch “Crypto.com Sports,” a platform offering prediction markets tied to major sporting events like the Super Bowl and the Stanley Cup. This move could revolutionize sports betting in the US, challenging established players like DraftKings and FanDuel while potentially reshaping the legal landscape of the industry.
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Historically, the CFTC has resisted approving such contracts, but recent legal developments have opened a window of opportunity. Crypto.com’s initiative marks a pivotal moment in the evolution of sports betting and could have far-reaching implications for both consumers and the industry as a whole.
Event Contracts: A Legal Framework for Prediction Markets
Crypto.com’s offering leverages “event contracts,” regulated derivatives falling under the CFTC’s jurisdiction as part of the Commodity Futures Modernization Act (CFMA). To offer these contracts, Crypto.com has self-certified as a Designated Contract Market (DCM), submitting information about the product to the CFTC for approval.
Event contracts function similarly to bets: users purchase contracts at a percentage of face value, profiting if the predicted event occurs. While seemingly identical to gambling, event contracts occupy a distinct legal category, thanks to a landmark legal battle fought by prediction market platform Kalshi.
Kalshi’s Victory: Paving the Way for Innovation
In 2023, the CFTC blocked Kalshi’s attempt to offer election prediction markets. However, Kalshi successfully challenged the CFTC’s decision in court, arguing that the agency lacked the authority to prohibit such markets. This victory, bolstered by the Supreme Court’s overturning of Chevron deference, significantly broadened the scope of permissible event contracts, creating the legal framework for Crypto.com’s current venture. While the CFTC’s appeal is ongoing, the initial ruling has opened the door for a new era of prediction markets.
The Potential Advantages of Federally Regulated Prediction Markets
The current US sports betting landscape, governed by state regulations, often presents challenges for users, including high fees, significant taxation, and limitations on skilled bettors. Crypto.com Sports offers a potentially superior alternative under federal regulation.
Federally regulated prediction markets are designed to facilitate risk hedging for businesses. For example, a caterer could offset the risk of low demand during a losing season by betting against their local team. However, these markets also serve as a close substitute for gambling, offering potential advantages: lower fees due to CFTC oversight, unrestricted access for skilled bettors, and potentially favorable tax treatment for losses.
Moreover, the Supremacy Clause of the Constitution could lead to federal preemption of state gambling laws, potentially rendering existing state-regulated sports betting illegal. This would represent a seismic shift in the industry, with far-reaching consequences.
Challenges and Uncertainties on the Horizon
Despite the promising outlook, Crypto.com’s initiative faces significant challenges. The established gambling industry and various states have a vested interest in maintaining the status quo. The CFTC could still attempt to block the platform, and the outcome of the Kalshi appeal remains uncertain.
Conclusion: A Game-Changing Moment for Sports Betting
Crypto.com’s foray into prediction markets represents a bold move with potentially transformative implications for the sports betting industry. While significant hurdles remain, the convergence of legal developments, technological innovation, and growing public interest suggests a bright future for this emerging market. The coming months will be crucial in determining whether this venture will redefine the landscape of sports betting in the United States.
