Washington court blocks Kalshi, citing illegal gambling
A Washington court has issued a preliminary injunction against Kalshi, after discovering that the company conducts illegal activities in violation of the state’s gambling laws. It also found that the Commodity Exchange Act does not override state gambling laws.
Washington is now part of the growing number of states that have taken legal action against Kalshi. Similar injunctions have also occurred in Massachusetts, Nevada, and Michigan. Together, these rulings reveal a growing consensus among regulators, as they perceive Kalshi’s event contracts as falling outside the scope of lawful trading and instead amount to banning wagering. The next hearing is set for 29 March 2027, according to the State of Washington King County Superior Court’s website.
Regulatory pattern
The Washington decision fits into a broader historical pattern in which regulators challenge prediction markets like Kalshi and its rival Polymarket when they blur the line between financial instruments and gambling.
This year alone, Kalshi’s daily trading volume surged with flagship markets on Federal Reserve rate decisions, Senate control, and Super Bowl outcomes. Reports reveal that it has exceeded $10 million, a sharp boost compared to previous years.
Kalshi has also expanded into sports, economic indicators, and climate derivatives. It reported to tax authorities and filed 1099s for U.S. users. In addition, the platform has now captured 89 per cent of the U.S. prediction market share and dominated the regulated exchange space, according to media reports.
Today, prediction markets are divided between federally regulated platforms like Kalshi and those of crypto-native or niche exchanges like Polymarket, PredictIt, and Manifold. Each platform differs in regulation, fees, liquidity, and accessibility, shaping how traders and regulators perceive them.
Federal oversight vs. state authority
By positioning itself as a federally regulated exchange for event-based contracts, it has also attracted more scrutiny over whether its offerings, like bets on political outcomes, qualify as legitimate financial tools. The current ruling highlights that state-level gambling laws continue to be enforced despite Kalshi’s reliance on federal oversight.
Despite the latest appellate rulings having strengthened the Commodity Futures Trading Commission’s (CFTC) authority, state courts continue to enforce gambling laws, which created a patchwork of conflicting decisions.
Last April, a judge extended a ban, calling Kalshi’s contracts “indistinguishable” from gambling. A U.S. appellate court affirmed that sports event contracts on Kalshi qualify as “swaps” under CFTC exclusive jurisdiction. This directly conflicts with state-level bans like Washington’s. Regulators have often argued that prediction markets resemble online sportsbooks such as DraftKings and FanDuel and should therefore follow state gaming rules.
Other concerns included lessened market depth when access is fragmented, as prediction markets become less reliable as forecasting instruments. Moreover, possible new event contract launches could be dampened as regulatory clarity emerges.
For instance, violators of New Jersey gambling laws, especially those linked to event contracts, could be charged with fourth-degree crimes. Additionally, they may face fines up to $100,000. Yet courts that do agree with Kalshi have highlighted that blocking federally licenced contracts weakens market stability and damages participants who depend on regulated exchanges.
Broader implications
According to legal experts, the Washington ruling could set a precedent for how prediction markets are handled across the country, especially in states that declare jurisdiction. Additionally, experts warn that insider trading and misuse of sensitive data could erode trust in prediction markets. More questions could be raised in the long run.
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