Cryptocurrency market outflows reflect a sentiment shock, as geopolitics, rate expectations and capital rotation into artificial intelligence weigh on digital assets, according to James Butterfill, head of research at CoinShares.

In a statement sent to Cointelegraph, Butterfill said that sentiment in crypto markets has “soured drastically” after billions of dollars flowed out of digital asset investment products in recent weeks.

“This is a pure sentiment shock rather than a structural break,” Butterfill said.

Butterfill added that the correction was being driven primarily by geopolitics, with uncertainty around the Iran conflict weighing on the outlook for interest rates. He said expected rate cuts had been pushed off the table, while markets were beginning to price in the possibility of higher rates.

The comments follow a sharp reversal in US spot Bitcoin exchange-traded funds (ETFs), which recorded about $1.72 billion in net outflows last week.

Spot Bitcoin ETF weekly flows data. Source: SoSoValue

Bitcoin rebound may still be fragile

Other analysts said Bitcoin’s recent rebound may not be enough to confirm a recovery. In a statement sent to Cointelegraph, Paul Howard, a senior director at liquidity firm Wincent, said last week’s outflows reflected institutional reactions to macroeconomic headlines, while pressure across tech-heavy markets showed the broader strain facing risk assets.

Howard said Bitcoin’s break below a key moving average suggested markets may have entered a more cautious phase, while elevated CME Bitcoin volatility pointed to continued news-driven swings. He said he remained cautious that the rebound would prove sustainable. 

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Adam Haeems, head of asset management at crypto investment firm Tesseract Group, said that much of the market narrative had focused on Strategy’s sale of 32 BTC in late May. However, he said the sale, which raised about $2.5 million, was too small to mechanically explain the broader BTC decline. 

“It unsettled confidence, because Strategy had been treated as a near one-way source of corporate demand, but it was a signal shock, not the flow behind the fall,” Haeems said. 

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Coinbase has urged U.S. lawmakers to remove capital gains tax requirements on stablecoin payments and exempt small crypto transactions from burdensome reporting rules.

According to testimony delivered by Coinbase vice president of tax Lawrence Zlatkin before the House Ways and Means Committee on June 9, the current tax framework forces Americans to calculate gains and losses on routine stablecoin payments and blockchain transaction fees, creating compliance burdens with little practical benefit.

Zlatkin appeared during a hearing focused on six digital asset tax bills that would update how the U.S. tax code treats cryptocurrencies, including proposals covering mining rewards, staking income, charitable donations, broker reporting obligations, and transaction-level tax rules.

Stablecoin payments should not trigger taxable events

Speaking on behalf of Coinbase, Zlatkin told lawmakers that federally regulated stablecoins pegged to the U.S. dollar should be treated at face value for tax purposes because they are designed to maintain a one-to-one relationship with the dollar.

Under the current system, users may need to track cost basis and calculate gains or losses every time they spend stablecoins, even when those transactions involve minimal value changes. Zlatkin argued that such requirements generate paperwork without producing meaningful tax revenue.

Alongside stablecoin reforms, Coinbase backed a proposal introduced by Congressman Rudy Yakym that would exempt gas fee transactions of up to $10 from tax reporting requirements.

The company also called for a broader de minimis exemption covering small purchases made with Bitcoin and other cryptocurrencies. Under Coinbase’s proposal, consumers making low-value crypto payments would not need to calculate taxable gains for every transaction.

The request follows earlier debate around crypto tax exemptions. In March, Coinbase chief executive Brian Armstrong rejected claims that he had lobbied against a Bitcoin tax exemption, describing those accusations as false and stating that he had personally supported a de minimis rule for Bitcoin transactions.

Coinbase seeks changes for staking and wash-sale compliance

Beyond transaction taxes, Coinbase endorsed legislation introduced by Congressman Mike Carey that would allow miners and validators to defer taxation on newly created digital assets until those assets are sold.

Explaining the company’s position, Zlatkin compared digital asset production to agricultural activity.

“A farmer is never taxed when a bushel of wheat sprouts from the ground; they are taxed when they harvest that crop, bring it to market, and execute a sale.”

Attention also turned to wash-sale rules, which currently prevent investors from claiming tax losses when they repurchase the same asset within 30 days of a sale.

While Coinbase said it supports applying wash-sale restrictions to crypto markets, Zlatkin warned that implementation presents technical challenges because digital assets trade continuously across centralized exchanges, decentralized liquidity pools, and self-custody wallets.

According to his testimony, the industry lacks a unified data system capable of identifying wash-sale violations across those venues in real time.

For that reason, Coinbase asked Congress to provide an implementation period of at least 18 to 24 months before any crypto wash-sale rules take effect. Zlatkin said an immediate rollout could result in reporting mistakes and increased IRS audits.

The testimony arrives as policymakers continue debating crypto regulation beyond taxation. Recent proposals from the New York State Department of Financial Services seek to align state stablecoin oversight with requirements established under the GENIUS Act.

Meanwhile, crypto investment firm Paradigm has separately urged the FDIC to revise parts of its proposed stablecoin framework that could restrict rewards offered by third-party companies.

Several industry participants, including Coinbase and Ripple, have also called on Congress to advance the CLARITY Act, a market structure bill that preserves certain activity-based stablecoin reward programs.

The U.S. Commodity Futures Trading Commission has unveiled a draft rule proposal for prediction markets, signaling a nuanced stance on the treatment of contracts tied to real-world events. The document indicates that sports-event contracts based on final scores and win-loss records may be permissible as price-discovery mechanisms under the public-interest standard, while bets linked to injuries, officiating decisions, or other outcomes that could invite manipulation are unlikely to meet that standard. The proposal also states that election contracts are not considered “gaming” under applicable federal law, a distinction that could reduce regulatory uncertainty for platforms such as Kalshi and Polymarket. The public comment period is set at 45 days, signaling a potential shift in how the United States defines and governs prediction markets going forward.

According to Reuters, the draft rules are intentionally principles-based rather than a blanket green light; each contract would still undergo a case-by-case public-interest analysis. The agency emphasizes that predication markets could play a legitimate role in price formation, but that not all event-based contracts will qualify. This approach reflects a broader regulatory aim to balance market innovation with safeguards against manipulation or consumer harm.

The push comes as platforms in the prediction-market space have gained traction with both retail and institutional participants. Kalshi and Polymarket, which surged in prominence during the 2024 U.S. presidential race, have seen their profiles rise as investors seek alternative channels for hedging and information discovery. The draft rules’ openness to categorizing certain event contracts as permissible could accelerate regulatory clarity for operators seeking to align with a formal public-interest standard.

The proposal’s impact on the legal status of event contracts was underscored by discussions with industry practitioners. Gary Kalbaugh, a partner at Cahill Gordon & Reindel LLP, described the framework as principles-based and contingent on a per-contract assessment. “Gaming is defined broadly enough to encompass sports events, but contracts that settle on aggregate outcomes—such as final scores or season statistics—are presumptively permissible,” he observed in commentary surrounding the draft.

Source: Gary Kalbaugh

Key takeaways

• The CFTC’s draft rule framework treats certain sports-event contracts—based on aggregate outcomes like final scores or win-loss records—as presumptively permissible under the public-interest standard, while contracts tied to injuries or officiating decisions face heightened scrutiny for potential manipulation.
• Election contracts are not considered gaming under the relevant federal laws, a designation that could reduce regulatory uncertainty for prediction-market platforms operating in the U.S.
• The rules are open for a 45-day public comment period and are described as asset-class oriented, signaling a potential shift in how prediction markets are categorized and overseen.
• Industry momentum remains robust, with Kalshi and Polymarket achieving high valuations and expanding institutional collaborations, including partnerships with Nasdaq and Dow Jones that integrate prediction-market data into broader market workflows.
• Analysts and academics emphasize a growing need to resolve whether event contracts are financial instruments or gambling instruments, a distinction with meaningful regulatory and compliance implications.

Regulatory stance and scope of the proposal

The draft rules articulate a clear distinction between types of event-based contracts, anchored in the mechanics of the underlying outcomes. Contracts tied to final scores, win-loss records, or other aggregate statistics are positioned as potential instruments for price discovery in efficiently priced markets. By contrast, contracts that could incentivize manipulation—such as those hinging on injuries, officiating judgments, or other sensitive event facets—may fail to satisfy the public-interest test. This nuanced approach reflects a tailored assessment rather than a universal endorsement or rejection of prediction-market activity.

Crucially, the proposal confirms that election contracts do not fall within the gaming category under federal law. This interpretation could reduce regulatory ambiguity for platforms that pivot to election outcomes, allowing for a more stable licensing and compliance pathway as operators expand their product offerings. The public-interest framework is described as case-by-case, meaning that even contracts based on seemingly permissible aggregate outcomes would still require a thoughtful, contract-specific evaluation by regulators before market access is granted.

Industry observers note the emphasis on a principles-based regime, which aims to balance innovation with investor protection and market integrity. The open-ended nature of the framework invites comments from a broad set of stakeholders, including exchanges, financial institutions, legal counsel, and researchers, potentially shaping a more mature U.S. regulatory regime for prediction markets.

From a legal and policy perspective, the proposal aligns with ongoing efforts to harmonize the treatment of market-based information tools with broader securities and derivatives frameworks, while maintaining safeguards against manipulation and fraud. While the draft does not provide a final license blueprint, it signals the CFTC’s willingness to define clear boundaries around permissible and impermissible market structures in this evolving space.

Market momentum and institutional engagement

The regulatory attention arrives as prediction markets have seen a surge in adoption and strategic collaboration. Kalshi and Polymarket now occupy prominent positions in this niche, with valuations reflecting substantial investor interest in market-based forecasting tools. The landscape has broadened beyond pure retail participation to include institutional interest and cross-sector partnerships that embed prediction-market data into traditional information ecosystems.

Notably, Kalshi has forged a collaboration with Nasdaq to launch a new category of prediction markets that allows forecasting of private-company valuations ahead of private financing rounds and potential IPO milestones. This initiative signals a practical pathway for using event-driven contracts to glean forward-looking signals about private markets, expanding the traditional suite of commodity- and equity-linked contracting.

Polymarket has partnered with Dow Jones to integrate real-time prediction-market data into its media brands, including The Wall Street Journal, illustrating how market-derived probabilities can inform financial journalism and decision-making processes. These partnerships demonstrate a trend toward mainstreaming prediction-market data as a source of dynamic information for investors, researchers, and policymakers alike.

Academia and research firms have commented on the practical significance of these developments. Melinda Roth, a professor of sports law and corporate finance at Georgetown University Law Center, notes that the central question remains whether event contracts should be treated as financial instruments or as gambling instruments. As markets grow and scale, the regulatory overlay will influence how institutions structure risk, comply with KYC/AML requirements, and manage legal risk across borders.

Industry analysts have also highlighted a broader shift toward institutional adoption. Bernstein’s researchers point to growing appetite among sophisticated market participants seeking hedge-like tools and macro-risk hedges through binary or probabilistic contracts. The rising integration of prediction-market data into traditional market infrastructure—whether for hedging, forecasting, or risk management—suggests that these markets are moving from a niche activity toward standard practice in some research and risk-management workflows.

As the sector expands, questions about market integrity, insider information, and governance persist. Academic and professional discourse emphasizes the need for robust compliance frameworks that address potential biases, conflicts of interest, and the risk of insider trading on event outcomes. The continued collaboration with media outlets and financial data providers also elevates the importance of reliable data feeds and transparent methodology to ensure that market signals remain credible and auditable.

Reuters notes that the CFTC’s approach to these markets could influence how other regulators view similar products, particularly in cross-border contexts where licensing, AML/KYC regimes, and consumer protections vary. The evolving policy environment underscores the importance for platforms and participants to align with evolving enforcement priorities, maintain clear governance structures, and implement rigorous surveillance to mitigate manipulation and fraud risks.

While the 45-day comment window leaves time for stakeholder input, the draft represents a meaningful step toward defining a stable regulatory framework for prediction markets in the United States. The outcome could shape licensing pathways, audit requirements, and enforcement expectations for exchanges and firms seeking to operate sophisticated, event-based markets on a compliant footing.

Related developments, including legal scholarship and industry analyses, continue to scrutinize whether these instruments function more like financial products or as forms of gambling, a distinction with material implications for investor protection standards and market oversight.

In the broader policy arena, the CFTC proposal intersects with ongoing conversations about how to regulate emerging data-driven markets while preserving innovation. The question of cross-border activity—where U.S. rules may diverge from other jurisdictions—adds another layer of complexity for platforms seeking global reach.

Overall, the proposal signals a pragmatic path forward: acknowledge predictive value in aggregated outcomes, guard against manipulation in sensitive event dimensions, and provide a regulatory corridor that could foster legitimate use cases in institutions and markets, while preserving the integrity of price discovery frameworks.

Closing note: as market participants prepare comments and refine product designs, the evolving regulatory dialogue will likely shape licensing regimes, compliance controls, and how these markets are integrated into traditional financial ecosystems.

What to watch next: how the CFTC finalizes the framework, the treatment of specific contract types, and the degree to which institutions adopt prediction-market tools within compliant, auditable risk-management architectures.

Robinhood Securities said it had secured approval to act as an IPO underwriter, moving from a distribution role into the main underwriting group alongside Wall Street banks.

Chief executive Vlad Tenev said in a Tuesday X post that Robinhood Securities is “now approved to serve as an underwriter,” without specifying which regulator granted the approval, a process that typically involves oversight from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Framing the move as the “natural next step” after launching IPO Access in 2021, Tenev said the question in equity capital markets had shifted from “why allocate to retail at all?” to “how big can the allocation be?”

Robinhood secures underwriter status. Source: Vlad Tenev

His comments land as SpaceX reportedly considers making as much as 30% of its record-setting offering available to retail investors and as demand already runs at close to four times the planned size.

Crypto rails race for SpaceX

Robinhood’s push to sell IPO shares directly to app-based traders comes as crypto platforms race to build parallel rails around the same listings.

Major exchanges have begun offering alternative access to private markets through tokenized pre-IPO products, including Bybit’s xStocks, Kraken’s pre-IPO equity tokens and Coinbase’s secondary markets.

On the derivatives side, a Tuesday report from Talos and Coin Metrics argues that onchain pre-IPO perpetuals are becoming a meaningful price discovery venue in their own right.

Liquidity is increasingly a hybrid of retail traders, crypto-native funds and systematic market makers, according to the report, with SpaceX contracts on Hyperliquid generating billions in volume and hundreds of millions in open interest.

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The report highlights Cerebras Systems, where Hyperliquid’s pre-IPO futures tracked the stock’s eventual opening level within about 1%, while underwriters priced the IPO itself far lower.

Samar Sen, vice president of international markets at Talos, told Cointelegraph that underwriters and retail platforms like Robinhood are increasingly likely to monitor these signals for high-profile listings as a supplementary input for assessing demand, though not as a replacement for traditional book-building.

For an underwriter, pre-IPO perpetuals are “unlikely to determine retail versus institutional allocations on their own, but they can provide an additional signal around investor demand ahead of listing,” he said.

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