The US crypto prediction market sector is under siege from both federal lobbying and state-level legal action, with traditional gaming interests pushing hard to ban blockchain-based sports betting platforms. In a joint letter to the Senate, the American Gaming Association (AGA) and the Indian Gaming Association (IGA) are urging lawmakers to include explicit language in upcoming crypto legislation that would prohibit sports prediction markets from operating under any digital asset regulatory framework. The groups argue that platforms like Polymarket and Kalshi, which settle contracts via smart contracts and cryptocurrency, effectively function as unlicensed sportsbooks, bypassing state consumer protections, licensing requirements, and integrity monitoring that govern legal sports betting since the Supreme Court’s 2018 decision to overturn PASPA.
Simultaneously, Kentucky Attorney General Russell Coleman has filed a lawsuit against Kalshi and Polymarket, alleging they offer event-based contracts that constitute unlicensed sports wagering under Kentucky law. The suit not only targets the platforms but also flags that associated service providers—Coinbase, Robinhood, and Webull—do not provide gambling addiction support systems, intensifying consumer protection concerns. Kentucky seeks injunctive relief to shut down the platforms in the state and potential fines.
The Coordinated Assault
These moves represent an escalating clash between the $10 billion regulated sports betting industry and the nascent crypto prediction market space. The AGA has long maintained that sports event contracts are a threat to licensed sportsbooks, and this latest lobbying effort aims to insert a ban directly into a crypto-focused bill advancing through the Senate. At the same time, state-level suits like Kentucky’s add immediate enforcement pressure, following similar actions in New Jersey, Nevada, and Texas.
This regulatory patchwork creates uncertainty for platforms. The Commodity Futures Trading Commission (CFTC) has signaled increased scrutiny, yet no federal framework exists to clarify whether event-based derivatives fall under gambling or financial regulation. If the Senate adopts the proposed ban, crypto-linked operators could face explicit federal prohibition, forcing them to exit the US market or restructure entirely.
For the broader crypto industry, the outcome could set a precedent for how Congress treats other blockchain products that overlap with regulated sectors. With stablecoin legislation also in play, lawmakers' appetite for drawing firm boundaries around crypto innovation is growing. As new crypto projects like Re Token prepare to launch, the gaming industry’s campaign underscores how traditional sectors are weaponizing the legislative process to protect their turf.
