CFTC Launches Innovation Task Force as Prediction Markets Face State Bans, Senate Bill Push, and Billion-Dollar Growth

Federal Push for Clear Rules Collides With State Crackdowns and Expanding Market Scale

TL;DR

• CFTC launches innovation task force and opens rulemaking process for prediction markets with April 30, 2026 comment deadline
• States escalate enforcement with 11 jurisdictions involved, including Nevada halt and Arizona criminal charges
• Senate bill targets sports contracts as market volumes hit $1 billion and firms pursue multibillion-dollar valuations

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Federal regulators moved to formalize oversight of prediction markets on March 24, 2026, when the Commodity Futures Trading Commission announced a new Innovation Task Force covering crypto, artificial intelligence, and event-based contracts. Chairman Michael S. Selig said the initiative aims to create a “clear regulatory framework” while coordinating with agencies including the Securities and Exchange Commission. Michael J. Passalacqua was named to lead the effort as the agency signaled direct engagement with emerging financial technologies tied to derivatives infrastructure.

Regulatory groundwork had already been laid on March 12 when the agency issued an advanced notice of proposed rulemaking focused on prediction markets, formally inviting public input on whether to amend existing rules or establish new ones under the Commodity Exchange Act. The consultation process includes a public comment deadline set for April 30, 2026, with officials stating the goal is to produce a “rational and coherent interpretation” of federal derivatives law while reinforcing the agency’s exclusive jurisdiction over event contracts.

Selig framed the initiative as part of a broader domestic competitiveness push, stating, “By establishing a clear regulatory framework for innovators building on the new frontier of finance, we can foster responsible innovation at home and ensure American market participants are not left on the sidelines.” The statement accompanied confirmation that prediction markets are now being treated alongside crypto and AI within a unified regulatory priority set.

State-level opposition has intensified in parallel, with legal actions now spanning 11 states targeting platforms including Kalshi and Polymarket. Nevada secured a temporary halt on March 20 that blocked Kalshi’s operations for 14 days following action by the Nevada Gaming Control Board, which argued the platform was offering unlicensed gambling products within the state.

Arizona authorities escalated enforcement further by filing criminal charges against firms associated with Kalshi, alleging the companies were “running an illegal gambling operation and taking bets on Arizona elections.” The complaint detailed that contracts available to residents included wagers on professional and college sports outcomes, proposition bets tied to individual player statistics, and political outcomes such as whether the SAVE Act would become law.

Additional state legislation is advancing alongside enforcement actions, with Utah introducing HB243 to define proposition betting as “a gambling bet on an individual action, statistic, occurrence, or non-occurrence.” Pennsylvania lawmakers proposed a framework placing prediction markets under the state gaming regulator, including a 34% tax on gross revenue, a 2% local share assessment, mandatory age restrictions, self-exclusion programs, and compliance obligations tied to anti-money laundering and know-your-customer standards.

Judicial rulings have begun shaping jurisdictional boundaries, with a federal judge in Tennessee blocking a state injunction and determining that certain contracts qualify as “swaps” under federal law, placing them within CFTC authority. Legal arguments cited in proceedings noted that classification under the Commodity Exchange Act could limit states’ ability to impose taxation or licensing requirements, with billions of dollars in potential tax revenue referenced in relation to the 40 states that permit online sports betting.

Pennsylvania Representative Danilo Burgos stated that “regulatory arbitrage” leaves residents exposed while depriving the state of revenue, adding it represents “another opportunity to expand the tax base.” The remarks were made as part of legislative efforts to assert state-level control over prediction market operations and revenue streams.

Federal lawmakers introduced new restrictions on March 23 through the bipartisan Prediction Markets Are Gambling Act, led by Senators John Curtis and Adam Schiff. The bill seeks to prohibit CFTC-registered entities from offering contracts resembling sports betting or casino-style outcomes, positioning itself as the first bipartisan Senate measure directly targeting prediction markets.

Congressional materials cited market expansion metrics, stating sports-related contracts are now generating “tens of millions of dollars” in trading activity, with a single March Madness contract exceeding $100 million in volume and Super Bowl-related trading surpassing $1 billion in 2026. Senator Curtis said, “The Prediction Markets Are Gambling Act is about respecting states’ authority, protecting families, and keeping speculative financial products out of spaces where they don’t belong.”

Separate legislative proposals introduced earlier in March include a measure by Senator Chris Murphy on March 18 to prohibit contracts tied to government actions, terrorism, and war, and a bill filed on March 11 by Senators Richard Blumenthal and Andy Kim to grant states direct regulatory authority while establishing insider trading prohibitions within prediction markets.

Policy analysts at TD Cowen described the current legislative efforts as “messaging bills” with “no path” to passage under the current Congress, adding that even if enacted they would likely face a presidential veto that could not be overridden. The firm stated that “policy risk is high for prediction markets even if legislation this year will not advance,” and identified the 2028 election cycle as the “real threat” to the sector’s regulatory outlook.

Market dynamics have extended into publicly traded companies, with Flutter reported to have lost more than half its value over the past 12 months, while DraftKings declined 13.5% following earnings released in February amid concerns over competitive pressures and structural shifts linked to prediction market growth.

Institutional participation has accelerated as infrastructure expands, with BitGo enabling access through a partnership with Susquehanna and allowing market participants to use crypto or stablecoins as collateral without liquidating existing positions. The structure enables capital deployment without portfolio exit, contributing to deeper liquidity and increased participation from larger trading entities.

Venture capital has moved into the sector through 5c(c) Capital, which is raising up to $35 million for a dedicated prediction markets fund backed by Kalshi CEO Tarek Mansour and Polymarket CEO Shayne Coplan alongside investors including Marc Andreessen, Micky Malka, and Kyle Samani. The fund plans to invest in about 20 companies over the next two years, focusing on infrastructure such as market makers and index design, with its first close expected within a month.

Samani said “the next few years are critical to build out infra,” while internal materials described the sector as a “generational investment opportunity.” The expansion comes as Kalshi pursues a $1 billion raise at a $22 billion valuation and Polymarket targets approximately a $20 billion valuation, even as regulatory actions and legal challenges continue across multiple jurisdictions.

This article has been refined and enhanced by ChatGPT.