Will Congress Fix Crypto Regulations Before It’s Too Late? Behnam says the lack of legal clarity leaves the CFTC “handcuffed” as the crypto market continues to evolve.
The CFTC is “handcuffed”
US Commodity Futures Trading Commission Chairman Rostin Behnam is expressing his concerns, and it’s not just about the growing complexity of the crypto market.
Behnam, a longtime advocate for clearer rules in the digital asset space, is now urging Congress to address two critical issues: crypto regulation and election betting.
In recent remarks at a key industry meeting, Behnam lamented that as technological disruption accelerates, the lack of clearer legal frameworks leaves regulators like the CFTC “handcuffed.”
Without action from Congress, risks to investors and to the integrity of U.S. markets will continue to increase. But as we approach an election year and mounting policy hurdles, will lawmakers act in time to close these gaps — or will we be left in the dark?
The unfinished business of cryptocurrency regulation
Behnam’s call for action on cryptocurrency isn’t new, but the stakes have never been higher. The rapid rise of digital assets, from Bitcoin (BTC) to decentralized finance, has left the regulatory framework struggling to catch up.
Several bills, like the Financial Innovation and Technology for the 21st Century Act, aim to provide some clarity, but they remain stuck in a legislative void.
FIT 21, which passed the House of Representatives earlier this year, would grant the CFTC greater authority over “digital products” like Bitcoin. However, no progress has yet been made in the Senate.
FIT 21, for example, offers 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 under securities laws?
And to top it all off, there is the pressing dilemma of excessive interference from the United States Securities and Exchange Commission and its current chairman, Gary Gensler, a known critic of crypto, whose policies and administration are considered by many to have done more harm than good.
Therefore, without a well-defined legal framework, the CFTC finds itself in a difficult position: able to enforce certain rules but unable to fully protect investors.
According to Behnam, this regulatory vacuum exposes markets to bad actors and discourages institutional investors from entering the sector with confidence.
Behnam doesn’t expect Congress to take significant action this year because of the holidays and the urgency to pass a federal budget.
“I think by 2025, with a new Congress and potentially a new president, it’s likely we’ll see some legislation,” he noted.
Growing chaos of election betting
As the crypto market faces regulatory ambiguity, the rise of election betting platforms like Kalshi and Polymarket has plunged the CFTC into a legal battle it did not anticipate.
Kalshi, a prediction marketplace where users can bet on election results, clashed with the CFTC when the agency deemed election contracts illegal, arguing they could undermine public trust in democratic processes.
This was not the first time the CFTC had cracked down on such platforms. Polymarket, another prediction marketplace built on the Polygon (POL) blockchain, was fined $1.4 million in 2022 for operating without proper regulatory compliance, forcing it to suspend operations for US residents .
The debate intensified when Kalshi sued the CFTC in 2023, resulting in a court ruling in favor of the platform in September 2024. The judge ruled that the CFTC had exceeded its statutory authority by blocking the Kalshi election contracts.
The agency quickly appealed the decision, but Kalshi resumed his bets on the 2024 US presidential election. This sparked concern, not only from regulators, but also from prominent figures in the sector.
Billionaire investor Mark Cuban, a vocal critic of such platforms, has expressed concerns that betting markets could be distorted by foreign influence or market manipulation. “These odds don’t indicate anything significant,” Cuban commented.
On the other hand, figures like Peter Thiel, the tech billionaire, have financially supported Polymarket, seeing it as a tool to exploit market sentiment.
With billions of dollars flowing through these platforms during election cycles, delayed action by Congress could make it more difficult to police prediction markets and protect the integrity of U.S. elections.
Betting markets thrive despite scrutiny and legal criticism
As the US election cycle draws to a close in just two weeks, prediction markets like Kalshi and Polymarket are seeing unprecedented activity despite ongoing legal battles and heavy criticism.
Kalshi, which launched its election forecasting contracts in October after winning a CFTC lawsuit, has gained some momentum.
The platform attracted more than $47 million in trading volume for its top U.S. election contract as of Oct. 22, a strong start for a platform that has been in and out of courtrooms.
However, Kalshi’s volume still lags behind that of its larger and more established competitor Polymarket, which topped $2.16 billion in total trading volume.
Polymarket recorded $40 million in transactions just in the first month of its presidential betting, January-February 2024, thanks to global participation as the platform operates without the need for US traders or a knowledge process of the customer.
This distinction between the two platforms highlights their different approaches: Kalshi’s regulatory compliance limits trading to US nationals and permanent residents, while Polymarket, operating in the gray zone of offshore markets, attracts a more global user base. wide.
Interestingly, both platforms show similar trends in predicting election results. On Polymarket, Donald Trump currently holds a 64% chance of winning, while Kamala Harris trails with 36%.
Kalshi shows a similar trend, but with slightly different margins: Trump leads with 59%, while Harris follows with 41%. Despite the differences in platform operations, betting sentiment appears consistent across the board.
Kalshi, being the regulated platform, faces less risk of market manipulation accusations, which have often been leveled at Polymarket.
Critics of Polymarket say its lack of KYC requirements opens the door to foreign interference and dark money that pushes the odds in certain directions.
Despite all the criticism and noise, both platforms are thriving, each offering unique insight into how people perceive the election outcome.
As the election approaches, these platforms will likely remain at the center of market activity and regulatory debates, proving that prediction markets are not only alive, but thriving, even under scrutiny.
