Minnesota criminalises prediction markets as CFTC moves to block the ban in federal court

Minnesota Governor Tim Walz has signed legislation criminalising the operation and promotion of prediction market platforms in the state from August 1, making Minnesota the first US state to outlaw the sector and prompting an immediate legal challenge from the CFTC, which argues the ban violates federal commodity law.

Minnesota becomes first state to outlaw prediction markets

The new Minnesota law targets platforms that allow users to trade on the outcome of future events, including elections, sports, weather, entertainment, and government actions.

Platforms such as Polymarket and Kalshi have seen explosive growth over the past two years as traders increasingly use event contracts to speculate on political and economic outcomes.

Under the legislation, operating or advertising these markets in Minnesota could become a criminal offense. State officials argue the products function similarly to online gambling and should fall under state enforcement authority.

Minnesota Attorney General Keith Ellison defended the state’s position while criticizing the broader impact of prediction market platforms.

“Prediction markets are designed to be addictive and prey especially on young people and low-income folks”. Keith Ellison, Attorney General of Minnesota

The law marks the strongest state-level crackdown yet against prediction markets in the United States and could encourage similar efforts elsewhere if upheld in court.

CFTC pushes back against state authority

The CFTC responded almost immediately, arguing Minnesota’s law violates federal authority under the Commodity Exchange Act because prediction market contracts qualify as derivatives or “swaps” under federal law.

CFTC Chairman Michael Selig said the agency intends to defend what it sees as its exclusive jurisdiction over these markets.

The federal regulator has increasingly aligned itself with prediction market operators during a growing wave of legal challenges from state gaming authorities.

Earlier this year, the agency filed legal actions involving Arizona, Illinois, Connecticut, and New York over similar disputes tied to prediction market oversight.

In February, Selig warned states attempting to restrict prediction markets that the CFTC would aggressively defend federal jurisdiction.

“Prediction markets aren’t new. The CFTC has regulated these markets for over two decades.” — Michael Selig, Chairman, CFTC

The agency argues that these platforms serve legitimate market functions beyond speculation, including hedging commercial risks and improving price discovery.

Why crypto investors are closely watching the case

The dispute carries significant implications for crypto-native platforms and decentralized finance ecosystems increasingly tied to prediction markets.

Polymarket, in particular, has become one of the most recognizable blockchain-based prediction platforms globally, using crypto infrastructure and stablecoin settlements to facilitate trading activity.

If Minnesota prevails, states could gain stronger authority to restrict or criminalize certain event-based crypto markets despite federal oversight claims.

That outcome could create a fragmented regulatory landscape for platforms operating across multiple jurisdictions.

Industry participants also fear stricter state enforcement could push trading activity offshore, reducing transparency and weakening U.S. competitiveness in digital financial markets.

The legal battle also arrives as prediction markets become increasingly intertwined with crypto speculation, election forecasting, sports markets, and macroeconomic trading narratives.

Several analysts view the sector as one of the fastest-growing intersections between blockchain technology and financial derivatives.

A broader regulatory battle is emerging

Minnesota’s move reflects a widening national divide between state regulators and federal agencies over how prediction markets should be classified and supervised.

States including Utah and Nevada have also attempted to restrict or challenge the platforms, while courts remain divided over whether the products resemble gambling or federally regulated derivatives.

For crypto investors, the case could establish a precedent affecting the future legality of blockchain-based event markets in the U.S.

The outcome may ultimately determine whether prediction markets evolve as a mainstream financial product under federal oversight or face a patchwork of state-level restrictions.