The Commodity Futures Trading Commission (CFTC) ignited a firestorm on Friday with a proposed rule change targeting prediction markets. The move seeks to prohibit trading on the outcomes of political events, effectively shutting down platforms like PredictIt and Polymarket popular among crypto enthusiasts.
The CFTC, led by Chairman Rostin Behnam emphasizes protecting the integrity of the democratic process, suggesting the CFTC would become an “election cop” if forced to oversee such markets. CFTC is not a gambling regulator, and the agency wouldn’t be capable of ensuring market integrity in this field.
Prediction platforms such as PredictIt, Polymarket, Zeitgeist, and Kalshi allow users to buy contracts based on the outcomes of actual events such as elections and policy developments. These platforms have gained a lot of popularity in the cryptocurrency market.
Users place simple yes-or-no bets that pay off if they’re correct and lose their if they’re incorrect. The proposals call for a ban on Contracts for political contests, awards contests, and game outcomes for US-regulated companies.
The agency has been opposing such firms in court for years, and the proposed rulemaking approved by the three Democratic appointees to the US derivatives agency would declare political outcome trading contrary to the public interest.
Further citing concerns about the potential market manipulation, Behnam is drawing a hard line. Behnam argues that these contracts “commoditize and degrade” the democratic process, likening them to gambling on war or assassination.
This proposal, however, faces fierce opposition from within the CFTC itself. Commissioner Caroline Pham blasts the move as a “stunning overreach” and questions the agency’s regulatory track record. She even proposes a Government Accountability Office review, hinting at potential shortcomings within the CFTC.
Commissioner Summer Mersinger joins Pham in dissent, while Commissioner Christy Goldsmith Romero criticized the lack of enforcement staff present at the crucial meeting, further highlighting the internal divide.
Industry voices echo these concerns. Brian Quintenz, a former CFTC commissioner, slams the move as “bad government,” arguing for regulation over outright prohibition. He fears this action will drive these markets offshore, potentially exposing consumers to greater risks.
The proposed rule is not set in stone. A 60-day public comment period allows for industry and public input before a final ruling is issued.
With strong opposition from within the agency and the industry, the CFTC’s fight to silence political prediction markets is far from over. The final outcome of this clash remains to be seen, but it’s clear the future of political event contracts in the U.S. hangs in the balance.
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