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Industry leaders in the crypto sector have rallied against a proposed rule change by the U.S. Commodity Futures Trading Commission (CFTC) that could ban political prediction markets in the United States.
These markets, which allow individuals to bet on the outcomes of future events, including political elections, have grown in popularity as a tool for forecasting and decision-making. Some in the industry have also embraced prediction markets as a key component of their operations.
Among those voicing their opposition are major players such as Coinbase, Gemini, Crypto.com, Robinhood, and influential blogger Scott Alexander. They argue that the proposed ban would stifle innovation and limit access to a burgeoning area of economic activity.
Coinbase, one of the leading cryptocurrency exchanges, was quick to criticize the CFTC’s proposal. “Event markets are a promising area of our future economy,” Paul Grewal, Coinbase’s Chief Legal Officer, wrote on X.
“We fully support the CFTC’s mission to uphold the integrity of the U.S. derivatives market and believe they can provide a robust regulatory framework for this emerging class of contracts. However, this proposal, if adopted, will ban many prediction contracts without good reason.”
More Crypto Leaders Weigh In On Potential Ban
Cameron Winklevoss, co-founder of Gemini, has also voiced disagreement regarding a ban on prediction markets. In a post on X, he urged the CFTC to reconsider its approach, suggesting that a more collaborative process with industry stakeholders would be a better path forward.
“Rather than forging ahead and denying Americans access to these powerful markets, the CFTC should withdraw this Proposed Rule and go back to the drawing board with industry stakeholders. This would be the trust-building move,” he wrote.
Steve Humenik, Senior Vice President at Crypto.com, also weighed in, submitting a formal comment to the CFTC. Humenik argued that the agency should not exceed its regulatory mandate.
“Congress had the ability to draft much more simply ‘the following types of event contracts are prohibited,’ but it did not,” Humenik’s letter said.
Dragonfly Capital, a prominent venture capital firm in the crypto space, echoed these sentiments. In a joint comment, Jessica Furr and Bryan Edelman, associate general counsels at Dragonfly, pointed to a recent Supreme Court decision that could limit the CFTC’s regulatory authority.
They argued that the CFTC must carefully consider its jurisdictional reach. “The CFTC is neither a gambling nor an election regulator and is not equipped to regulate this market; whether the CFTC has jurisdiction over election events contracts requires a court’s determination,” they wrote.
Other notable voices in opposition included Robinhood, well-known blogger Scott Alexander of the Astral Codex Ten Substack, and the founder of ElectionBettingOdds.com, a popular platform aggregating election odds.
U.S. Senators Ask for Ban on Political Betting
The CFTC first proposed the rule in May, and if finalized, it would ban event contracts related to political contests and other sensitive areas such as gaming, war, terrorism, and assassination. These contracts would be prohibited from being listed for trading or accepted for clearing through a CFTC-registered entity.
Last week, a group of U.S. Senators and House representatives called for a ban on political betting, particularly in light of the upcoming 2024 presidential election.
The bipartisan group, which includes Senators Jeff Merkley, Richard Blumenthal, Elizabeth Warren, and Representatives Jamie Raskin and John Sarbanes, expressed their concerns in a letter to CFTC Chair Rostin Behnam.
They warned that political betting could undermine the integrity of the electoral process by allowing wealthy individuals to influence election outcomes through large wagers.
“Political bets change the motivations behind each vote, replacing political convictions with financial calculations,” the lawmakers wrote, emphasizing that elections should not be reduced to profit-making ventures.
They pointed to platforms like Polymarket, where millions of dollars have been wagered on election-related markets, as evidence of the need for stricter regulation.
Polymarket, a decentralized prediction market platform launched in 2020, has seen a surge in trading volume as interest in the 2024 election grows. The platform, which allows users to bet on real-world events using cryptocurrencies, reached a record-breaking $1 billion in monthly trading volume in July 2024.
Despite its success, Polymarket has faced challenges, including regulatory scrutiny. In January 2022, the platform was fined by the CFTC for operating without proper authorization.
The Bottom Line
Industry leaders in the crypto and fintech sectors have opposed a CFTC proposal that could ban political prediction markets in the U.S. They argue that such a ban would stifle innovation and restrict access to valuable economic tools.
Cameron Winklevoss and Steve Humenik are advocating for a more collaborative approach to regulation, warning against the dangers of regulatory overreach. Others, including associate general counsels at Dragonfly, have even questioned CFTC’s authority over such a decision.
