Hegemony of the CFTC Over the Prediction Market: Why Naive Assumptions Need to Be Changed?

If you still believe that Polymarket and Kalshi are just digital casino prediction platforms, then your understanding of this market is too naive. Most recently, on February 17, 2026, the U.S. Commodity Futures Trading Commission (CFTC) filed a crucial claim in the Ninth Circuit Court: they have “exclusive federal regulatory authority” over the entire prediction market. This decision marks a turning point in how prediction markets are viewed—from regulatory gray areas to a structured financial system under federal oversight.

Shift in Authority: The Beginning of Federal Jurisdiction Competition

Prediction markets have gone beyond being “small toys.” In 2025, the global prediction market trading volume exceeded $60 billion—quadrupling from 2024. With such a large market share, various stakeholders are starting to compete for control.

This competition involves two opposing camps:

Local authorities (Nevada, Massachusetts, and other states) claim prediction markets are forms of gambling that should be regulated at the state level. They seek licenses, taxes, and age restrictions according to local regulations.

CFTC (federal authority) holds a different view: they define each prediction contract as a “swap” or “commodity derivative,” which falls entirely under federal jurisdiction based on the Commodity Exchange Act (CEA) of 1936. Under this interpretation, state governments do not have authority to regulate these markets.

CFTC Chairman Michael Selig recently stated in The Wall Street Journal that “the CFTC will not allow local governments to infringe on the federal exclusive jurisdiction over these markets”—indicating that regulatory conflicts will continue to escalate.

New Legal Framework: Why Naive to Distinguish Prediction as Gambling

Many crypto newcomers are still confused about why prediction market regulation is so important. The answer lies in how a legal decision can change the legal status of a product.

If prediction markets are classified as “gambling,” then each state has its own authority to regulate them—creating a patchwork of inconsistent regulations. You might be able to trade in New York but face bans in California. However, if the CFTC successfully enforces “exclusive supervisory rights,” prediction markets officially shift to a “federally structured financial instrument” status. When the CFTC approves, all 50 states must give the green light simultaneously.

The legal weapon of the CFTC is the interpretation of the CEA: every prediction—whether about election results, Super Bowl winners, or asset price movements—is not a lottery ticket but a derivative contract. Derivative contracts fall under federal jurisdiction, not local. This logic fundamentally changes the category of prediction markets from entertainment/gambling industries to high-level financial infrastructure.

Legal Precedent: Kalshi vs. Polymarket in the Regulatory Arena

To understand the future direction, we need to analyze two platforms that serve as industry trend barometers.

Kalshi, which consistently complies with regulatory pathways, won a District Court decision in Washington D.C. in September 2024. The judge ruled that the CFTC’s restrictions on Kalshi’s election contracts “exceed authority.” This decision opens opportunities for Kalshi to expand into sports events. However, this expansion triggered strong reactions from Nevada, which feels its traditional casino business is threatened. Ironically, the CFTC’s position has shifted dramatically: from pressuring Kalshi to defending them against state lawsuits.

Polymarket, on the other hand, takes a decentralized approach. This blockchain-based platform on Polygon, despite being fined $1.4 million by the CFTC in 2022 and being delisted from U.S. markets, continues to grow rapidly worldwide through blockchain transparency and borderless access. During the 2024 elections, Polymarket recorded extraordinary trading volumes.

A key lesson: the CFTC is now pursuing regulatory hegemony strategically—if they do not normalize prediction markets within the federal framework soon, thousands of traders will migrate to decentralized blockchain platforms like Polymarket, where federal government control and data collection capabilities are diminished.

Growth Momentum in 2026: Political and Technological Convergence

2026 marks the convergence of three factors creating a “super cycle” for prediction markets:

Political landscape shift: The new U.S. administration, pro-crypto, places regulators like Michael Selig in the CFTC. The regulatory philosophy shifts from “pursue and criminalize” to “integrate and normalize.”

Mainstream players entering: Truth Social, Trump’s social platform, plans to launch prediction markets in 2026. This indicates prediction has moved beyond crypto niches into mainstream finance. As traditional players enter, regulatory legitimacy becomes a priority.

Oracle technology revolution: Prediction markets are no longer just binary “yes or no” products. With AI and real-time oracle tech like Chainlink, prediction contracts evolve into complex financial instruments with automatic settlement based on verified data.

Participation Strategies: Infrastructure and Investment Opportunities

Crypto investors aiming to capitalize on prediction market growth should focus on two layers of infrastructure.

Layer 1: Blockchain infrastructure: Polygon (POL) plays a strategic role as the main chain for major platforms like Polymarket. Currently priced at $0.11 (down 0.28% in the last 24 hours with $396.19K volume), POL offers exposure to the growth of the prediction ecosystem through fundamental infrastructure utility. As regulation positions prediction markets as mainstream instruments, transaction volume on this layer will surge significantly.

Layer 2: Oracles and settlement: Chainlink (LINK), priced at $8.74 (down 1.78% in 24 hours with $5.34M volume and a market cap of $6.19B), is the backbone for accurate data resolution powering all modern prediction contracts. Without reliable oracles, prediction markets cannot operate with the high credibility required by financial institutions.

However, investors should be cautious of short-term threats: as jurisdictional battles between federal and state authorities continue, some platforms may face sudden regulatory pressure in certain states. Diversification—using multiple platforms and avoiding liquidity concentration—is highly recommended.

Common beginner mistake: Many still treat prediction markets as pure gambling—buying based on instinct without thorough research. This is a fatal error. Profitable professionals analyze regulatory policies, data flows, and contract structures. Prediction markets are information arbitrage machines—only those with superior information will survive.

Conclusion: A New Foundation for Growth

The CFTC’s actions in 2026 essentially complete the “final compliance puzzle” for prediction markets. When federal jurisdiction is clearly established, prediction markets cease operating in regulatory gray areas and become officially recognized financial assets at the federal level.

This shift opens three future possibilities: first, mass adoption of prediction markets by institutional investors; second, standardization of prediction products creating a deeper ecosystem; third, integration of prediction markets into traditional financial systems as legitimate hedging and price discovery tools.

The naive notion that prediction is just “digital casino gaming” must be discarded. It is an ongoing revolution in financial infrastructure.