The derivatives sector of the cryptocurrency exchange Crypto.com has initiated a federal lawsuit against the gaming regulators of Nevada, contending that the state unjustly obstructed the firm’s ability to provide financial binary event contracts related to sports for local residents.
Crypto.com Takes Nevada to Court Over Event Contracts Ban
North American Derivatives Exchange Inc., which operates as the derivatives arm of Crypto.com, lodged the lawsuit on Tuesday in the U.S. District Court for Nevada against the Nevada Gaming Control Board. This legal action marks a significant escalation in an ongoing struggle between state gaming regulators and federally sanctioned prediction markets. The case revolves around the question of whether state gaming regulations can oversee financial products that fall under the jurisdiction of federal authorities. Crypto.com asserts that the Commodity Futures Trading Commission (CFTC) has sole authority over its event-based derivatives contracts, as stipulated by the Commodity Exchange Act. The company emphasized in its legal documents that “NGCB has no authority to regulate, let alone prohibit, derivatives trading offered by a federally regulated designated contract market operating pursuant to federal law.”
On May 20, Nevada gaming officials issued Crypto.com a cease-and-desist order, warning of potential criminal and civil repercussions if the exchange did not halt the offering of sports event contracts to residents of Nevada. The state argues that these financial products amount to illegal sports wagering under its laws.
Precedent from Similar Cases
Crypto.com’s legal approach is significantly influenced by recent federal court successes involving the prediction marketplace KalshiEX. In April, U.S. District Judge Andrew Gordon ruled in favor of Kalshi by preventing Nevada gaming regulators from enforcing actions against it, citing that federal law overrides state authority concerning CFTC-regulated event contracts. Similar rulings have emerged from conflicts with New Jersey gaming regulators, illustrating a trend where federal courts favor CFTC-regulated entities over state gaming boards.
Last month, FinanceMagnates.com conducted a study and engaged with industry stakeholders to assess whether event contracts should be categorized as investments or likened to binary options—an investment type that is prohibited in Europe—and pure gambling. While the debate remains contentious, Jack Such from Kalshi, who handles Business & Media Development, believes these contracts could evolve into “a trillion-dollar asset class.”
Regulatory Scrutiny Continues
Both Crypto.com and Kalshi have previously come under the scrutiny of the CFTC regarding Super Bowl-related contracts in February. The federal agency looked into whether these offerings adhered to current derivatives regulations, though both companies maintained that their products were compliant with the law. Robinhood, which momentarily provided similar prediction markets through Kalshi’s platform, opted to withdraw its March Madness contracts from New Jersey amid regulatory pressures but later reinstated its prediction trading offerings. Crypto.com is pursuing a permanent injunction to prevent Nevada from enforcing its gaming laws against its federally regulated derivatives operations. Additionally, the company seeks a declaratory judgment to affirm that federal law supersedes state gaming authority concerning CFTC-regulated event contracts.
