Crypto Betting Battle Heats Up in Nevada Courts

Crypto trading platforms have been offering prediction markets on a number of markets, including financial movements and sporting events. However, two recent court cases in Nevada - one that is seemingly viewed in a positive light, while the other is seen in a negative light - have market pundits unsure of its future.

 Crypto Platform Faces Setback in Nevada Court

The legal team for the crypto trading platform was shocked when Judge Andrew Gordon denied their request for an injunction against the Nevada Gaming Control Board. The injunction would allow the platform to continue offering sports predictions until the final ruling in the case is handed down.

The reason for their surprise is that the judge had approved an injunction for Kalshi, a regulated exchange and prediction marketplace that also offers sports events. His ruling in their case stated:

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“Section 2’s plain and unambiguous language grants the CFTC exclusive jurisdiction over accounts, agreements, and transactions involving swaps or contracts of sale of a commodity for future delivery that are traded or executed on exchanges that the CFTC has designated”

Both parties argue that their offerings should be regulated by Commodity Futures Trading Commission (CFTC) rules, as they are structured, and fall within the requirements for financial futures trading.

A spokesperson for the crypto platform said:

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“When two cases on the same issues before the same judge result in two completely different rulings, it guarantees a different result at the appellate level. We remain steadfast that the contracts we offer are swaps subject to the exclusive jurisdiction of the CFTC and we look forward to the next round following our appeal.”

Why the ‘Swap’ Classification Matters

The spine of the suit is that while these peer-to-peer transactions are at their core betting, they are doing so on the outcome of financial movements, and as such should be classified as ‘swaps’ and not gambling under the Commodity Exchange Act.

Here is a simple breakdown of what a crypto swap is:

1. A swap is a contract in which two parties agree to exchange money based on the outcome of a specific event.
2. For example, you and I might sign an agreement: “If Team A wins, I pay you $10; if they lose, you pay me $10.”
3. When such a contract is traded on a regulated exchange, such as one licensed by the Commodity Futures Trading Commission, it can legally be classified as a “swap” instead of a bet.

Gaming lawyer Daniel Wallach took to social media to comment on why he thinks the ruling may have gone against them in this case.

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“Since it was a motion for preliminary injunction, the finding probably was that Crypto.com was unable to demonstrate a likelihood of success on the merits, with the court focusing on whether the contracts qualify as swaps.”

He followed this up by warning that this lack of support could be more damning than anyone realises.

Both cases depend on the providers' ability to prove that crypto betting predictions meet the criteria to be classified as ‘swaps’. Any court case where it can be demonstrated that they are not, in fact, swaps could set a precedent for them being regarded as gambling and thus fall under the scope of state gambling laws.

 Broader Impact on Prediction Markets and Crypto Gambling

The divergence in rulings for cases seeking to establish the same precedent, and where both parties offer the same service, has thrown the online gambling industry into disarray.

Should the judge end up ruling against the application of the ‘swaps’ label, we could see crypto exchanges that offer peer-to-peer wagers of this type either remove them from the site or have to apply for a betting license to avoid legal action by state regulators.

The CFTC, which has been relatively quiet on the topic, did post the following ‘caution’ to platforms providing these contracts:

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“[Provider] should provide customers, market participants, and clearing members with regularly updated information, including information based on any States in which they operate or engage in activity, to ensure that such customers, market participants, and clearing members understand the possible effects should State regulatory actions or ongoing or new litigation, including enforcement actions, result in termination of sports-related event contract positions.”

The post continues to advise participating platforms to publish processes for “liquidation or close-out policies and procedures” in the case that these sports-related event contracts are deemed illegal.

This has already had a knock-on effect across the broader industry, with betting sites like DraftKings and Flutter seeing a drop in their stock prices, despite there being no final legal determination.

With both companies preparing for appeal, the Nevada decision could determine whether crypto prediction markets fall under financial regulation or state gambling law, a ruling that promises to be an industry game-changer no matter where the chips fall.