TLDR

• The Third Circuit Court of Appeals delivered a 2-1 decision preventing New Jersey from applying its gambling regulations to Kalshi’s platform
• Federal Commodity Exchange Act provisions were determined to supersede state-level gambling regulations for sports-event prediction contracts
• The CFTC maintains it has sole regulatory authority over prediction markets, classifying event contracts as swaps under federal law
• Federal courts nationwide are delivering inconsistent judgments, with the Third Circuit supporting Kalshi while the Ninth Circuit backs Nevada’s position
• The CFTC launched lawsuits against Arizona, Connecticut, and Illinois in recent weeks to prevent state-level regulation of prediction markets

A United States federal appeals court has prevented New Jersey regulators from closing down Kalshi’s sports-focused prediction markets, determining that federal regulatory frameworks hold precedence over state gambling legislation.

On Monday, the US Court of Appeals for the Third Circuit issued a 2-1 decision supporting Kalshi, the prediction market operator. The panel determined that New Jersey gaming regulators lacked authority to pursue enforcement measures against the platform.

According to the judges, Kalshi’s sports-focused event contracts fall under federal Commodity Exchange Act jurisdiction. This classification means state gambling statutes cannot govern these activities.

“Kalshi self-certified compliance with the applicable laws and regulations, so those event contracts were presumptively approved under federal law,” the majority ruling said.

The panel emphasized that the CFTC has neither deemed Kalshi’s sports-related contracts contrary to public welfare nor initiated any enforcement proceedings against the company.

In a statement posted on X, Kalshi CEO Tarek Mansour described the decision as “a big win for the industry and millions of users.”

Circuit Judge Jane Roth issued a dissenting opinion, characterizing Kalshi’s offerings as “sports gambling” that are “virtually indistinguishable” from products available on traditional sports betting platforms. She referenced contracts involving NFL game outcomes, point spreads, and scoring totals as evidence.

A Patchwork of Conflicting Court Rulings

Government authorities throughout the United States have initiated legal challenges and issued cease-and-desist directives targeting prediction market operators, including Kalshi and Polymarket. State officials contend these platforms breach state gambling statutes.

Judicial outcomes have varied significantly. While Monday’s Third Circuit judgment supports Kalshi, the Ninth Circuit refused last month to prevent Nevada from obtaining a temporary restraining order against the identical company.

A Nevada state judge also prolonged restrictions on Kalshi only days prior to Monday’s appeals court decision. Another Ninth Circuit proceeding involving several platforms is scheduled for later this month.

CFTC Pushes Back Against State Regulators

Since assuming leadership, CFTC Chair Michael Selig has prioritized prediction market oversight. He maintains the CFTC possesses “exclusive jurisdiction” over event-based contracts.

The previous week, the CFTC initiated legal action against Arizona, Connecticut, and Illinois to block what it characterized as unauthorized state attempts to govern prediction markets.

During remarks at Vanderbilt University on Monday, Selig explained that the agency’s commodity definition is comprehensive and treats sports events, political outcomes, and conventional commodities like corn and grains under the same regulatory umbrella.

The CFTC additionally submitted an amicus brief articulating its position to the Ninth Circuit before next week’s scheduled hearing.

The jurisdictional dispute between state and federal authorities regarding prediction market regulation continues, with numerous cases advancing through the judicial system concurrently.

Key Points

• Senator Bill Hagerty anticipates the CLARITY Act will advance to the Senate Banking Committee during April
• The legislation aims to transfer primary crypto regulation from the SEC to the CFTC
• Disagreements over stablecoin yield provisions have caused delays, but recent discussions suggest a breakthrough
• Senate Banking Committee Chairman Tim Scott hasn’t announced a markup session date
• Polymarket traders estimate a 63% probability of Trump enacting the legislation in 2025

During remarks at the Digital Assets and Emerging Tech Policy Summit held at Vanderbilt University on Monday, Senator Bill Hagerty projected that the CLARITY Act would proceed through the Senate Banking Committee over the coming weeks, establishing an April timeframe for the landmark crypto regulation bill.

Hagerty expressed optimism that the legislation could successfully navigate the banking committee before April concludes, provided that lingering concerns are addressed satisfactorily.

“There’s still a lot more work to do,” Hagerty acknowledged, though he emphasized that none of the remaining challenges were “insurmountable.”

The CLARITY Act secured House passage in July under its current title. Senate progress has been hindered by disputes surrounding stablecoin interest payments, ethical considerations, and resistance from certain cryptocurrency industry factions.

The proposed legislation would reallocate crypto market oversight responsibilities primarily from the Securities and Exchange Commission to the Commodity Futures Trading Commission. Given both regulatory bodies’ involvement, the bill requires endorsement from the Senate Agriculture Committee as well as the Senate Banking Committee.

The Agriculture Committee moved its iteration of the bill forward in January. The Banking Committee must still conduct a markup session before the legislation can advance to a full Senate floor vote.

Progress Emerges on Stablecoin Yield Standoff

The debate over stablecoin yield mechanisms has represented the most significant obstacle. Cryptocurrency firms, notably Coinbase, had raised objections to previous language that imposed sweeping restrictions on stablecoin reward programs.

Sources from both the crypto and banking sectors informed Crypto in America last week that representatives from both industries examined revised stablecoin yield provisions and express cautious optimism about reaching consensus. The specific wording of the updated language remains confidential.

Paul Grewal, Chief Legal Officer at Coinbase, expressed confidence that an agreement would materialize. He indicated to reporters last week that legislators were “close to a deal” on outstanding matters.

Committee Markup Timing Remains Uncertain

Senate Banking Committee Chairman Tim Scott hasn’t established a timeline for the markup session. The committee has also remained silent on whether it intends to publish a revised draft for public review.

Pro-cryptocurrency Senator Cynthia Lummis has suggested a markup could occur this month. However, pro-XRP attorney and Senate candidate John Deaton cautioned that delays extending into summer would likely redirect Congressional attention toward midterm election campaigns, potentially dooming the bill.

Hagerty recognized the political timeline pressure. “If we get this done in April, we can clearly get this taken care of before the midterms,” he stated.

Cryptocurrency-focused political action committees are mobilizing for 2026 campaigns. Fairshake disclosed a $193 million fundraising total designated for the November midterm elections. The Fellowship PAC, which claims to have secured more than $100 million from crypto-supportive donors, announced Tether executive Jesse Spiro as its new chairman this week.

Polymarket trading currently indicates 63% probability of Trump signing the CLARITY Act into law during 2025, although those odds temporarily declined to 50% in recent trading.

Progress on a potential crypto safe harbor framework is now entering a key regulatory phase as it is up for White review.

US Securities and Exchange Commission Chair Paul Atkins said the agency’s proposed “Regulation Crypto Assets” package has been submitted to the Office of Information and Regulatory Affairs, placing it under White House review ahead of publication.

“We will have reg crypto that we will be proposing here shortly. It’s in fact at OIRA right now, which is the next step before being published,” Atkins said during remarks at the Digital Assets and Emerging Technology Policy Summit.

The regulatory process now moves through OIRA review before publication in the Federal Register, where it will be opened for public comment. That stage often determines how proposals are adjusted before any final adoption.

As previously reported by crypto.news, Atkins first detailed plans for the framework earlier this month. The proposal outlines a three-part framework designed to address how crypto projects raise capital and transition out of securities classification. 

One component introduces a startup exemption, allowing early-stage ventures to raise funds over a four-year period with lighter disclosure requirements. Another creates a fundraising exemption that permits issuers to raise capital within a 12-month window while maintaining access to other registration exemptions under federal securities laws.

A central feature of the package is an investment contract safe harbor. Under this approach, certain digital assets could fall outside securities classification once project teams step back from managerial roles that were previously promised or implied during fundraising.

Atkins indicated that parts of the framework are still being refined, with the SEC seeking industry input to ensure the rules are workable in practice. Additional elements, including exemptive relief and safe harbor protections, are being built into the proposal as the agency shapes the final structure.

Meanwhile, the commission, led by Paul Atkins, has also stepped up efforts to ease its enforcement-first approach and clarify other parts of the crypto market.

The SEC has signed a Memorandum of Understanding with the Commodity Futures Trading Commission. Both agencies have agreed to eliminate any friction that could hamper rule-making in the future.

Lawmakers are also negotiating whether the Digital Asset Market Clarity Act should allow stablecoin yields.

The challenge to solving the quantum threat to Bitcoin could be more social than technical, according to Grayscale’s head of research, especially if the community fails to come to an agreement on certain contentious issues.

Google released a paper that shook the crypto industry on March 30, suggesting that a quantum computer could potentially crack the cryptography protecting Bitcoin (BTC) using far fewer resources than previously thought.

Grayscale head of research Zach Pandl, however, suggested the problem for Bitcoin doesn’t come from its technical solution, as “bitcoin has lower risk than other cryptocurrencies” because it uses a UTXO model and proof-of-work consensus, does not have native smart contracts and certain address types are not quantum vulnerable.

Instead, the challenge would be for the community to reach a decision on the way forward, said Pandl. 

The Bitcoin community has been fiercely debating what to do about old dormant coins, particularly the roughly 1.7 million BTC locked in early P2PK addresses, including Satoshi’s estimated 1 million BTC stash, currently worth about $68 billion. 

The Bitcoin community has three options 

The Bitcoin community needs to decide what to do about coins where the private key has been lost or is otherwise inaccessible, wrote Pandl. 

They have three main options: burning the coins, deliberately slowing their release by limiting the rate of spending from vulnerable addresses or doing nothing. 

“All are conceptually doable, but the challenge is reaching a decision, and the Bitcoin community has a history of contentious debates over protocol changes, including last year’s dispute around image data stored in blocks.”

Pandl was referring to a big fracas that erupted in 2023 over the use of blockspace for Bitcoin Ordinals, technology that enables inscribing data such as text and images to a satoshi, the smallest unit of Bitcoin. 

Two years later, the debate may have quietened down, but the two sides continue to hold opposing views.

Related: Researchers say quantum computers could, in theory, be ready by 2030

No threat now but time to get started

Pandl cautioned that it was “time to get started” and that blockchains need to adopt post-quantum cryptography, echoing the sentiment from Google. 

Both Solana and the XRP Ledger are already experimenting with post-quantum cryptography, wrote Pandl. Meanwhile, the Ethereum Foundation released its post-quantum roadmap in February.

Pandl concluded that investors “should not fret” for now, but it is time to accelerate efforts to prepare for our post-quantum future. 

“In our view, there is no security threat to public blockchains from quantum computers today.”

Magazine: Nobody knows if quantum secure cryptography will even work