The CFTC sued Minnesota to block a new law banning prediction markets starting Aug. 1, sparking a legal battle over state gambling regulations and federal market authority.
summation
- The CFTC sued Minnesota a day after Walz signed the nation’s first complete prediction markets ban.
- Regulators want to issue an injunction before Aug. 1, when the new state law takes effect.
- Minnesota will ban encryption kiosks statewide starting in August while allowing bank storage.
The Commodity Futures Trading Commission filed the lawsuit May 19, one day after Gov. Tim Walz signed the Minnesota bill into law. The agency said the law would make it a felony to operate or assist in the operation of a prediction market in the state. A preliminary injunction was requested before the Aug. 1 start date.
CFTC Chairman Michael Selig criticized the law in the agency’s announcement. “This Minnesota law turns legitimate operators and participants in prediction markets into felons overnight,” he said. The regulator also said the law applies to many markets regulated by the CFTC, including contracts for weather-related events.
Minnesota targets prediction market activity.
Minnesota’s law targets platforms that allow users to trade on future events. This may include sports, elections, weather, and other results. Reuters reports that the bill would make it a crime to operate, host or promote such markets in Minnesota starting August 1.
The CFTC argues that these contracts fall under federal authority as derivatives. The agency said Minnesota’s law conflicts with the federal framework for CFTC-regulated markets. Minnesota Attorney General Keith Ellison said his office was reviewing the case and would respond in court, according to Reuters.
Meanwhile, the lawsuit comes as Kalshi and Polymarket are receiving increasing attention from state officials. Reuters reports that Kalshi is fighting several state-level lawsuits related to claims that his event contracts constitute illegal gambling.
Kalshi criticized Minnesota’s law after the lawsuit. A company spokeswoman told Reuters the ban was unenforceable and would push its activities overseas. Polymarkets said the incident showed Minnesota’s law was inconsistent with the federal framework for prediction markets.
Minnesota moves to broader encryption rules.
The incident began as Minnesota took several actions targeting cryptocurrency users and investors. According to a recent crypto.news report, Walz signed HF 3709, allowing state-owned banks and credit unions to offer virtual currency custody services starting August 1.
The same reporting thread also noted that the state of Minnesota is also banning virtual currency kiosks. Walz signed SF 3868 on May 5. The ban will also begin on August 1 and require operators to remove public kiosks by December 31.
Prediction markets move more into finance.
Prediction markets are also expanding beyond politics and sports. According to a separate crypto.news report, Polymarket has partnered with Nasdaq Private Market to launch markets tied to private company events, including valuation milestones, IPO timing, and secondary market activity.
This expansion gives the Minnesota case broader relevance to cryptocurrency-linked trading platforms. Now the court will consider whether Minnesota can treat prediction markets as prohibited gambling, or whether federal derivative law blocks the state from enforcing its ban.