CFTC Flags Market Manipulation Concerns

The U.S. Commodity Futures Trading Commission (CFTC) has warned of the potential for massive manipulation in prediction markets. This is part of the CFTC's latest motion against the U.S. predictions market Kalshi. To underscore its concerns, the CFTC pointed to documented cases of market manipulation on competitor platforms.

In a reply filed on September 14, the CFTC highlighted incidents on platforms like Polymarket and PredictIt. These cases demonstrate the vulnerabilities in prediction markets.

Incidents on Competing Platforms

Polymarket experienced a significant manipulation attempt by traders betting on Vice President Kamala Harris to win the 2024 U.S. presidential election.

Meanwhile, a 'fake poll showing Kid Rock leading Senator Debbie Stabenow in a senate vote on PredictIt affected the price of Stabenow's reelection contract. The CFTC emphasized that these incidents illustrate the risks associated with prediction markets.

Legal Maneuvers and Rulings

The CFTC partially lost its initial case against Kalshi on September 6. According to Kalshi's founder, Tarek Mansour, this ruling effectively allowed the platform to offer election betting.

However, on September 9, District Court Judge Jia Cobb issued a temporary stay order following an emergency motion from the CFTC. This order aimed to halt Kalshi from offering U.S. election markets.

Despite this, Mansour claimed that the U.S.'s first election market went 'live' three days later on September 12. However, it was taken down hours later due to another stay order from the appeals court.

Appeals and Financial Implications

The CFTC's latest filing was a reply in support of the stay motion in the appeals court. The commodities regulator filed a notice to appeal on September 12.

Despite this, Judge Cobb stated that the CFTC ' exceeded its statutory authority' by ordering Kalshi to halt its election markets in a separate opinion on the same day. Kalshi argued against the CFTC's motion for a stay on September 13, claiming that such an order would cause irreparable financial harm to the company.

They pointed out that similar products are still offered on other unregulated platforms. However, the CFTC dismissed Kalshi's argument as 'sophomoric', stating, 'A pharmacy does not get to dispense cocaine just because it is sold on the black market.'

Wider Implications for the Crypto Industry

A vital aspect of the case was whether Kalshi's operations constitute 'gaming' under U.S. laws, which would bring it under the CFTC's jurisdiction.

Cobb's ruling on September 6 was seen as a significant win for the broader crypto industry. Nick Tomaino, founder of the crypto fund 1confirmation, said, '[This is] great news for anyone who believes that having skin in the game is a fundamental aspect of being American.'

The case continues to unfold, with significant implications for the future of prediction markets and the regulation of similar platforms.