A federal judge just put pause on Tennessee’s attempt to shut down crypto prediction platform Kalshi.
U.S. District Judge Aleta Trauger issued a preliminary injunction, asking state regulators to stand down while the court battle plays out. For now, the platform remains active.
But this goes beyond a single state.
At the center is a growing battle in prediction markets. Are they illegal games? Or are they regulated financial products. This response could determine whether trading on sports and political scores becomes mainstream or is rejected by regulators.
Kalshi’s losing streak against the states (MD, MA and NV) ends in Tennessee, as the federal district judge grants Kalshi’s motion for a preliminary injunction against Tennessee. The court considers that sports contracts are "exchanges." pic.twitter.com/gOiiRIb98z
-Daniel Wallach (@WALLACHLEGAL) February 20, 2026
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What the decision means for forecasting market regulation
Platforms like Kalshi run prediction markets. Think less about sports betting, more about event trading. Instead of buying Apple stock, you buy a contract that pays off if something happens, like a team victory or a candidate taking office.
Tennessee and other states see it and call it gambling. Money is on the line. The outcome is uncertain. In their view, this triggers state gaming laws.
Kalshi sees things differently. He argues that these are financial contracts, regulated at the federal level by the CFTC.
A wave of new rulings and enforcement actions is intensifying the fight over prediction markets and sporting event contracts, raising a central question for the industry: Are these products federally regulated derivatives? #CFTC jurisdiction or regulated by the state #game? This alert… pic.twitter.com/NDQaxXSH36
– Holland and Knight (@Holland_Knight) February 20, 2026
This is the central battle. If states win, platforms could face a patchwork of 50 different rules or outright bans. If the federal side wins, prediction markets will be treated like futures or options, and the entire industry will move into mainstream finance.
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How the court ruled and what happens next
Judge Trauger delivered a real victory to the industry.
She sided with the federal view, ruling that Kalshi is more like a financial exchange than a gambling house. The court said the sports contracts were likely “exchanges” under the Commodity Exchange Act. And because the CFTC has sole authority over swaps, Tennessee’s gambling laws likely don’t apply.
That’s why she blocked the state’s cease-and-desist order, allowing Kalshi to continue operating while the case continues.
It’s wild where we left "prediction markets just play" for the CFTC to go to court to protect them.
Nearly 50 states are trying to close Kalshi and Polymarket.
The federal government is fighting back.
Meanwhile, $6 billion in contracts are traded every week.… pic.twitter.com/mTXlnsd02f
– JΞFF
(@JefferyCrypt) February 20, 2026
(@JefferyCrypt) But this fight is far from over.
A Nevada court recently ruled the opposite way, backing the state’s regulators. So now there is a split. In one state it seems legal. In another, not so much.
When courts disagree like this, it often ends up in the Supreme Court. Perhaps this is where the final national response will be decided.
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Tennessee Judge Blocks State Action Against Kalshi: Crypto Win? appeared first on 99Bitcoins.
