The administration of the state of Connecticut issued an order for the immediate suspension of operations with event contracts for the platforms Kalshi, Robinhood, and Crypto.com. This move reinforces the region's strict policy regarding digital assets.
The decision demonstrates the growing regulatory gap between local gambling laws and federal oversight of derivative financial instruments.
A new twist in the conflict with the crypto industry
The Department of Consumer Protection (DCP) sent demands to cease operations to three major players in the market. Officials accuse the platforms of organizing illegal online sports betting under the guise of event contracts. According to the agency, the companies violate state gambling laws and jeopardize users' financial security.
This decision followed five months after Governor Ned Lamont signed a bill that prohibits state investments in bitcoin. It solidified Connecticut's status as one of the least cryptocurrency-friendly jurisdictions in the U.S. While Texas, Arizona, and New Hampshire are exploring the possibility of creating bitcoin reserves, Connecticut continues to tighten restrictions.
The regulator's arguments against the platforms
In an official press release dated December 3, the DCP stated that the listed companies do not have a license to organize betting. Agency representatives emphasized that the contracts violate numerous state regulations. In particular, it concerns the admission of individuals under 21 years old to trading.
The regulator has raised a number of serious claims against prediction market operators. The list of violations includes advertising to individuals on the self-restriction list and a lack of integrity control. Furthermore, platforms allegedly allow betting on events with known outcomes in advance and operate outside consumer protection systems. Officials also accuse companies of misleading users about the legality of such investments.
Chris Gilman, the director of the DCP gaming division, noted that betting on prediction markets cannot be considered investments. Against this backdrop, the agency urges platforms to cease all operations with sports contracts and allow state residents to withdraw funds.
Legal collision and federal oversight
Robinhood and Kalshi have already expressed disagreement with the authorities' position, citing federal regulation. However, only Kalshi has filed a federal lawsuit challenging the state's authority. This dispute exposes a serious legal issue regarding the delineation of influence between local gambling laws and federal derivative regulation.
Users on social media are actively discussing the current situation. Market participants point to the obvious inconsistency in the approaches of various agencies to the same financial instruments.
Scaling legal disputes
Connecticut is not the only state to confront the industry. New York is also involved in litigation with Kalshi. Simultaneously, Nevada regulators issued a ruling on their right to oversee sports event contracts. This undermines the industry's arguments about exclusive federal oversight.
Nevertheless, the overall regulatory environment continues to change. The Polymarket platform previously received CFTC approval and expanded operations to more than 20 states. This creates a sharp contrast with the prohibitive measures taken in Connecticut.
Current actions by the authorities increase uncertainty around the legal status of prediction markets. Various states assert their powers, creating a complex and fragmented regulatory map in the U.S. Experts predict an increase in the number of lawsuits in the near future.
The outcome of these disputes will determine the future of the industry. Prediction markets will either become federally regulated financial products or be classified as gambling under state supervision. A key point will be the result of the Kalshi lawsuit and the response of other regions to the interaction model between Polymarket and the CFTC.
