Federal Court Halts Connecticut Enforcement, CFTC Jurisdiction in Focus for Kalshi

Kalshi, the prediction market platform, has secured a temporary reprieve from enforcement by Connecticut regulators after a federal judge ruled that the state's gambling laws could not be applied to the company while its legal challenge proceeds. The decision, handed down by Judge Vernon Oliver, temporarily blocks Connecticut from taking further action against Kalshi, which has been accused of operating unlicensed online sports betting. The ruling gives Kalshi time to defend its position in federal court, where it argues that its event contracts fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC) and are not subject to state gambling statutes according to court documents.

The state of Connecticut issued cease-and-desist orders on December 2 against Kalshi, Robinhood, and Crypto.com, accusing them of offering unlicensed sports betting through "sports event contracts." The Department of Consumer Protection (DCP) claimed that the platforms lacked the necessary security and consumer protections required by state law, and that they operated without oversight on critical issues such

as age verification and integrity controls according to state regulators. Connecticut regulators emphasized that only three entities-DraftKings, FanDuel, and Fanatics-are legally authorized to offer sports wagering in the state according to the DCP.

Kalshi responded quickly, filing a lawsuit in federal court the day after the cease-and-desist order was issued. The company argued that Connecticut's attempt to regulate its platform infringes on the federal framework established for derivatives and that the CFTC has exclusive jurisdiction over its operations. The lawsuit further contends that the state's actions violate the Commodity Exchange Act by interfering with federally regulated markets as legal experts explain. Robinhood, meanwhile, cited its CFTC-regulated status and the fact that it operates through a registered derivatives entity as reported by Coindesk. Crypto.com has yet to respond publicly to the allegations according to industry sources.

Why the Standoff Happened

The dispute highlights a growing national debate over whether prediction markets should be regulated under state gambling laws or as federally oversight derivatives. Connecticut regulators argue that Kalshi's and similar platforms operate without the safeguards required of licensed operators and pose risks to consumers. These risks include a lack of technical security for financial and personal data, the absence of integrity controls to prevent insider betting or manipulation, and the potential for wagering on events with known outcomes according to regulatory filings. The state also raised concerns about marketing to under-21 users and those on self-exclusion lists as stated in the cease-and-desist order.

Kalshi and its supporters counter that the company's contracts are distinct from traditional gambling and should be treated as derivatives under federal law. They emphasize that the CFTC has approved Kalshi as a Designated Contract Market and that it adheres to federal regulations. The company further argues that states have no authority to override federal oversight and that the Commodity Exchange Act prevents states from interfering with federally regulated markets as confirmed by legal analysis. This tension between state and federal regulatory frameworks is at the core of the legal battle.

What This Means for Investors

Kalshi has been experiencing strong growth, with record trading volumes and a recent $1 billion funding round that valued the company at $11 billion. In November 2025, the platform reported a monthly trading volume of $4.54 billion, surpassing its October total and marking a significant increase from the previous year. The company has also formed high-profile partnerships, including a collaboration with CNN to integrate real-time market data into its news coverage. This expansion has drawn attention from both retail traders and institutional investors, with Galaxy Digital reportedly in talks to provide liquidity to prediction markets platforms like Kalshi and Polymarket as stated in industry reports.

Investors are closely watching how the legal challenges unfold, particularly given the potential for broader regulatory shifts. If courts continue to side with Kalshi and affirm its status as a federally regulated entity, it could open the door for other prediction markets to operate without state-level restrictions. On the other hand, a ruling in favor of Connecticut or other states could prompt a wave of new regulations that could limit the growth of the industry. This legal uncertainty has already prompted Kalshi to expand its litigation efforts, with ongoing lawsuits in New York, Massachusetts, Nevada, and other states as reported by financial news outlets.

The outcome of these legal battles will likely influence not just Kalshi but also the broader fintech and crypto sectors. As prediction markets gain traction and attract more institutional interest, the regulatory environment will play a key role in determining their long-term viability. For now, the temporary relief granted by the federal court allows Kalshi to continue its operations in Connecticut while the larger legal and policy questions are resolved in the courts.