U.S. Prediction Markets Get Complete Regulatory Reset Under Trump

The Biden administration's attempt to ban political prediction markets—comparing them to contracts on terrorism and assassination—just got completely erased. CFTC Chairman Mike Selig didn't just withdraw the 2024 proposal; he called it the previous administration's "frolic into merit regulation."

From Prohibition to Permission

The regulatory whiplash is striking. In 2024, the Commodity Futures Trading Commission proposed treating political event contracts as "contrary to the public interest," legally equivalent to illicit war and terrorism bets. That rule never reached final form before Trump's return to the White House changed everything.

The irony runs deep. The CFTC had already lost a court battle to Kalshi in 2024, forcing them to allow political prediction markets. Yet simultaneously, they were crafting rules to ban them entirely. It was regulatory cognitive dissonance at its finest.

Polymarket and Kalshi emerged as the sector's major players after that legal victory, but they operated under a cloud of potential future restrictions. Selig's action Wednesday cleared that cloud entirely, promising "a new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act."

The Crypto Connection Deepens

This isn't just about prediction markets—it's about the evolving landscape where crypto and derivatives intersect. Coinbase is eyeing the prediction markets space, while Cboe explores similar products. The boundaries between traditional finance, crypto, and prediction markets are blurring fast.

The CFTC is positioning itself as the primary digital assets regulator, and prediction markets represent a crucial testing ground. Congress's ongoing crypto market structure bill aims to cement the CFTC as the rightful overseer of non-securities crypto spot markets—a mandate that could reshape the entire industry.

Selig also withdrew a September advisory that was meant to caution platforms about litigation risks but instead "inadvertently created confusion and uncertainty for market participants." The message is clear: the regulatory slate is being wiped clean.

Market Implications and New Players

The Trump administration's embrace of prediction markets has unleashed pent-up industry interest. Companies that were waiting on the sidelines are now actively exploring opportunities. The question isn't whether new entrants will emerge, but how quickly they can move.

Traditional financial institutions, crypto exchanges, and tech platforms all see potential in prediction markets. The regulatory clarity—or at least the promise of it—removes a major barrier to entry. But with opportunity comes competition, and the current market leaders may find their dominance challenged.