Regulus Partners: Kalshi’s Nevada win could set a “solid jurisprudence”

Regulus Partners has claimed that prediction markets need to be on “stronger legal and economic ground” if the sector is to continue its current trajectory. 

Since Crypto.com launched sports event contracts just before Christmas, regulatory scrutiny of this burgeoning sector has intensified.  

Kalshi has drawn the ire of several state regulators, with six issuing cease-and-desist warnings in Nevada, Montana, New Jersey, Illinois, Ohio, and Maryland. 

All of the authorities have argued that the product is effectively unauthorized sports wagering.

However, Kalshi has argued that it overseen at federal level by the Commodity Futures Trading Commission (CFTC), the derivatives regulator, and is not legally required to adhere to rules laid out by state-level gaming regulators.  

Regulus Partners’ commentary comes after the Nevada District Court judge allowed Kalshi’s request for a temporary restraining order in the state, effectively allowing it to continue offering its services.

Chief Judge Andrew Gordon agreed that Kalshi’s platform was legal under federal law, but that the future remained uncertain whether sports event contracts will be permissible in the same way the 2024 presidential election contracts were.

Regulus Partners said in a blog post the verdict was “frustrating for those (like us) who are convinced that sports event contracts are effectively ‘gaming’ under US law.”

However, the boutique analyst firm said the ruling did lay out “solid jurisprudence.”

“If the Nevada gambling regulator can stop Kalshi, then sports events contracts must ipso facto be betting — a definition which still has to be tested.

“Kalshi has every logical right to see no jurisdiction in its accusers until the fundamental principle has had its time in court — to recognise the jurisdiction of a gambling regulator over the CFTC given Kalshi’s fundamental position is simply to give up,” Regulus Partners wrote. 

Analysing the rise of sports event contracts in recent months, Regulus Partners compared the product to DFS as an “important niche,” before adding it could one day become adaptable enough to serve as a threat to traditional sports wagering.

However, such a development would open a “pandora’s box of market making (bookmaking) requirements for liquidity, ‘safer investing’ concerns, and tax treatment,” the team wrote.

It was also noted that the presence of a sports event contracts-friendly CFTC, with Kalshi board member Brian Quintenz soon to arrive as chair and President Donald Trump’s son, Don Jr, on the Kalshi board, the sector would have some powerful friends.

Regulus Partners wrote: “What is interesting now is whether a Trump connection and a Trumponomics-minded CFTC will wave sports event contracts through anyway and whether there will be a federal judicial brake applied.

“Kalshi previously arguing that election betting was okay because it was different to sports betting probably assists with this; again, we agree that election betting is an entirely logical CFTC-regulated event contract because elections have such fundamental economic importance — as Trump has just demonstrated. However, nothing is guaranteed.”

The CFTC is expected to issue more clarity on the topic during a roundtable, scheduled for later this month. 

In other Kalshi news, the exchange now accepts bitcoin deposits — a clear indication of an effort to attract crypto-native users.

Kalshi first accept crypto deposits last October in the form of USD Coin, a stablecoin pegged to the US dollar.