Will Congress Take Control or Let Crypto Run Wild?

Will Congress fix crypto regulation before it’s too late? Behnam says the lack of regulatory clarity has left the CFTC “handcuffed” as the crypto market continues to evolve.

CFTC “handcuffed”

US Commodity Futures Trading Commission Chairman Rostin Behnam is voicing concerns, and it’s not just about the increasing complexity of the crypto market.

Behnam, who has long advocated for clearer rules in the digital asset space, is now calling on Congress to address two critical issues: crypto regulation and election betting.

Speaking at a key industry meeting recently, Behnam fretted that as technological disruption accelerates, the absence of clearer regulatory frameworks is leaving regulators like the CFTC “handcuffed.”

Unless Congress acts, risks to both investors and the integrity of U.S. markets will continue to increase. But as an election year approaches and political hurdles mount, will lawmakers act in time to close these loopholes, or will we be left in the dark?

The unfinished business of crypto regulation

Behnam’s call to action on cryptocurrency is not new, but the risks have never been higher. The rapid rise of digital assets, from Bitcoin (BTC) to decentralized finance, has left the regulatory framework struggling to keep up.

Various bills, such as the Financial Innovation and Technology for the 21st Century Act, aim to provide some clarity, but they remain in legislative limbo.

FIT 21, which passed the House of Representatives earlier this year, would give the CFTC more authority over “digital commodities” like Bitcoin. But there has been no progress yet in the Senate.

FIT 21, for example, proposes clearer tests for determining whether a digital asset is a commodity or a security, but it also raises new questions. How should regulators define decentralization?

More importantly, who decides which assets are decentralized enough to be classified as commodities and which fall within the scope of securities laws?

Above all, there is a pressing dilemma over the over-interference of the U.S. Securities and Exchange Commission and its current chairman, Gary Gensler, a well-known crypto critic whose policies and management are seen by many to be more damaging than before. Good.

Therefore, without a well-defined legal framework, the CFTC finds itself in a difficult situation; It can enforce some rules, but it cannot fully protect investors.

Behnam argues that this regulatory gap exposes markets to bad actors and prevents institutional investors from safely entering the space.

Behnam doesn’t expect Congress to take meaningful action this year because of the holidays and the urgency of passing the federal budget.

“I think we will probably see some legislation as we look to 2025 with a new Congress and potentially a new president,” he said.

Growing chaos in election betting

While the crypto market faces regulatory uncertainty, the rise of election betting platforms like Kalshi and Polymarket has dragged the CFTC into a legal battle it did not foresee.

Kalshi, a prediction market where users can bet on election results, clashed with the CFTC after the CFTC deemed election contracts illegal and argued they could undermine public confidence in democratic processes.

This wasn’t the first time the CFTC had intervened in such platforms. Polymarket, another prediction marketplace built on the Polygon (POL) blockchain, was fined $1.4 million in 2022 for failure to properly comply with regulations and was forced to cease operations to US residents.

The controversy intensified when Kalshi filed a lawsuit against the CFTC in 2023, which resulted in the court ruling in favor of the platform in September 2024. The judge found that the CFTC exceeded its legal authority by blocking Kalshi’s election contracts.

The agency quickly appealed the decision, but Kalshi continued his bets on the 2024 US presidential election. This has alarmed not only regulators but also leading voices in the industry.

Billionaire investor Mark Cuban, a vocal critic of these platforms, has expressed concerns that betting markets may be skewed by outside influence or market manipulation. “These rates are not indicative of anything meaningful,” Cuban commented.

On the other hand, figures like tech billionaire Peter Thiel supported Polymarket financially and saw it as a means of containing market sentiment.

As billions of dollars flow through these platforms during election cycles, delayed action by Congress could make it harder to control prediction markets and protect the integrity of U.S. elections.

Betting markets thrive despite legal scrutiny and criticism

As the US election cycle draws to a close in just two weeks, prediction markets like Kalshi and Polymarket are witnessing unprecedented activity despite ongoing legal battles and heavy criticism.

Kalshi, which launched election forecasting contracts in October after winning its lawsuit against the CFTC, has gained some momentum.

As of October 22, the platform had over $47 million in trading volume for the main election contract in the US; This is a strong start for a platform that moves in and out of courtrooms.

But Kalshi’s volume still lags behind its larger, more established rival Polymarket, whose total transaction volume exceeds $2.16 billion.

Polymarket saw $40 million traded in just the first month of presidential betting from January to February 2024, driven by global participation as the platform operates without the need for US traders or a know-your-customer process.

This distinction between the two platforms underscores their different approaches: Kalshi’s regulatory compliance limits trading to US citizens and permanent residents, while Polymarket, operating in the gray zone of offshore markets, attracts a broader, global user base.

Interestingly, both platforms show similar trends in election outcome predictions. At Polymarket, Donald Trump currently has a 64% chance of winning, with Kamala Harris trailing at 36%.

Kalshi also shows a similar trend, albeit with slightly different margins; Trump is ahead with 59%, followed by Harris with 41%. Despite differences in platform operations, betting sentiment seems generally consistent.

Kalshi, the regulated platform, faces less risk of market manipulation accusations often leveled at Polymarket.

Critics of Polymarket argue that the lack of KYC requirements opens the door to foreign interference and uncertain money pushing the odds in certain directions.

Despite all the criticism and noise, both platforms are thriving, and each offers a unique snapshot of how people are perceiving the election outcome.

As the election approaches, these platforms will likely remain at the center of both market activity and regulatory debate, proving that prediction markets are not only vibrant but thriving even under scrutiny.