Connecticut Cracks Down on Crypto Prediction Markets

Connecticut's regulatory actions have intensified scrutiny over cryptocurrency prediction markets, as the state has issued cease and desist orders to three major platforms: Robinhood, Crypto.com, and Kalshi.

The Connecticut Department of Consumer Protection accused these companies of offering unlicensed sports betting through event contracts, asserting that they were conducting illegal online gambling without the necessary licenses.

DCP Commissioner Bryan Cafferelli emphasized that none of these entities were authorized to offer wagering in Connecticut, highlighting that even if they were, their contracts breached multiple state laws, including allowing individuals under the age of 21 to place bets.

Kris Gilman, the DCP Gaming Director, criticized the platforms for misleading advertising, claiming they operate outside the state's regulatory framework, thus exposing consumers to significant risks, including the absence of protections for their financial data.

The cease and desist letters mandated that the companies immediately halt all advertising and promotional activities related to these contracts or face civil or criminal penalties. Robinhood defended itself, stating that its event contracts are federally regulated by the Commodity Futures Trading Commission, offered through Robinhood Derivatives, LLC, which is a CFTC-registered entity designed to ensure compliance and safety for retail customers.

Kalshi, on the other hand, has responded aggressively, suing Connecticut in federal court, asserting that their platform is a regulated exchange for real-world events and is under exclusive federal jurisdiction.

Kalshi maintains that its sports event contracts comply with federal law and differ significantly from state-regulated sportsbooks. Furthermore, Kalshi's legal challenges are not limited to Connecticut; they have faced similar actions in New York, Massachusetts, and several other states, indicating a broader regulatory crackdown on prediction markets across the U.S.

In its ongoing disputes, Kalshi has emphasized the need for clarity on regulatory authority, especially following a federal judge's ruling in Nevada that could complicate their defense against state jurisdiction claims.

Meanwhile, the broader landscape for prediction markets is fraught with challenges, as only three platforms—DraftKings, FanDuel, and Fanatics—are legally licensed for sports wagering in Connecticut, which could limit the operational space for new entrants in this sector.

As the situation develops, the actions taken by Connecticut may serve as a precedent for other states grappling with similar regulatory issues surrounding cryptocurrency and online betting.