Two competing crypto-blockbusters are showing through mid-September. The political drama Clarity Act, a single-screen showing at the Congress venue on Capitol Hill, is about a group of Democratic senators who must decide whether to support a federal regulatory framework for cryptocurrencies.
On a much broader release, “screens” across the country are showing the courtroom drama Kalshi vs Attorneys General through at least November. This sleeper hit has a bunch of lesser-known actors – but the plot is high-concept – whether federal or state regulators will regulate prediction markets.
If the states win, nationwide prediction markets will leave U.S. shores. If the feds win, these markets could surpass $1 trillion in volume by 2030.
Senate Majority Leader John Thune has scheduled a vote on Sept. 15 to determine whether 60 senators will go on record in support of passage of the Clarity Act. This level of parliamentary “cloture” is needed to ensure that the legislation reaches President Trump’s desk and is signed into law, creating a permanent federal framework for cryptocurrency.
In the end, the vote on the Clarity Act is a binary choice. If seven or eight Democratic Senators decide to give the Trump family a pass on their current crypto investments, it will become law, since the House of Representatives has already passed its own version.
If the bill dies, the crypto show will close on Capitol Hill until perhaps 2029. Polymarkets gives the Clarity Act only a 13 percent chance of being signed into law this year, down from 19 percent in late August. Kalshi won’t even take a bet on its passage in 2026 but gives it a 53 percent chance of passage before Jan. 1, 2028.
The Kalshi vs. Attorneys General fight, on the other hand, will be ongoing for many months, perhaps culminating in a landmark Supreme Court decision in mid-2027.
The New York fight with Kalshi is over sports gambling, not over other event contracts. New York’s Attorney General Letitia James sued for a whopping $36 billion dollars for violating state gambling law, calling prediction markets “gambling platforms, plain and simple.”
Other states are similarly aggressive. Arizona has filed a 20-count criminal complaint against Kalshi, while Minnesota passed a law banning all prediction markets, only to have the law blocked by a federal judge.
States made $18 billion from gaming taxes in 2025, up from roughly $3 billion in 2000. New York made $1.3 billion from sports betting alone thanks to a 51 percent tax rate on wagers.
And it isn’t just states that benefit. The loosening of state-level gambling rules since the 1990s has created profitable sports gambling firms like DraftKings, FanDuel and BetMGM. All three are either publicly traded or owned by publicly traded companies.
Yet the Trump administration has been singularly aggressive in asserting federal control over prediction market regulation, in the face of serious state fightback. Commodity Futures Trading Commission (CFTC) Chairman Michael Selig, a strong proponent of federal regulation, has been adamant that event contracts used by prediction markets qualify as commodity futures “swaps,” meaning the CFTC has clear legal authority to regulate them.
Selig has some precedent on his side. The CFTC first granted permission for prediction markets in 1992 to the Iowa Electronic Exchange and later to HedgeStreet in 2004.
It is generally agreed that event contracts are legally binding binary contracts, with speculators taking each side of a Yes/No prediction. The odds change based on which side is more heavily bet, and when one side wins, the other side loses. Casino rules are different.
When a casino house puts its own money on the line, it stacks the odds in its favor. Such examples include the card game blackjack, also known as 21. When the dealer and the gambler have a tied card score, the dealer, who works for the Casino, always wins, which lowers the gambler’s odds significantly. And once a bet is made, it can’t be canceled or closed out like an event contract.
An even stronger legal argument comes from the tax courts and the Internal Revenue Service (IRS). For decades, the IRS treated sports bets and casino winnings as ordinary gambling income, while users of prediction markets report earnings as capital gains.
The fight has already split federal appellate courts – and can be condensed into the tight legal question: “Can federally regulated exchanges operate within a national market, or does each state retain the power to cancel a federally validated exchange?”
The California-based 9th Circuit has ruled in favor of the states, while the 3rd Circuit in Pennsylvania ruled in favor of the CFTC, setting up a judicial split that only a 6-3 Republican-majority U.S. Supreme Court can resolve.
Neither Kalshi nor Polymarket has an event contract on the direct question of who would win at the Supreme Court, although Polymarket gives a 52 percent chance that the court will accept an event contract case before the end of this year.
Quite the climax.
This article was originally published by RealClearMarkets and made available via RealClearWire.
