A Washington court ordered the company Kalshi to cease offering most of its event-based contracts within the state, as prediction markets become one of the most bustling trading venues in the cryptocurrency sector.
According to Pew Research data, from July 2024 through the first five months of 2026, cryptocurrency-related contracts accounted for approximately 20% of Polymarket's trading volume and about 7% of Kalshi's volume.
Data collected by Artemis indicates that the contribution of cryptocurrency-related contracts to prediction markets remains significant. For example, during the week ending August 9, 2026, crypto contracts made up about 20.3% of Kalshi's massive trading volume of $8.11 billion, while Polymarket managed to achieve 10.2% of its $1.78 billion volume through cryptocurrency transactions. State intervention in Kalshi's operations influences the legal debate on how far the prediction market and its connection to cryptocurrencies can develop.
This is a Gambling Case Decision, Not a Trading One
In a press release, the Washington State Attorney General's office stated that Judge John McHale of the King County Superior Court found that Kalshi likely violated Washington State's Gambling Act and Consumer Protection Act by engaging in illegal gambling activity, as noted by the court. On July 20, the judge issued a preliminary injunction, stating that the state was likely to prevail in the case and rejecting Kalshi's argument that federal commodity legislation takes precedence over Washington State's gambling laws.
On August 13, McHale issued an order instructing Kalshi to halt any operations related to sports, elections, politics, entertainment, culture, technology, science, and "catchphrases," which allowed the public to bet on whether public figures would utter specific words.
Kalshi must implement a geolocation system based on IP addresses and residence by August 19, followed by the launch of a multi-source system by September 2, which will restrict access for users residing in Washington across various markets.
"Kalshi has gotten rich by advertising bets on sports, elections, natural disasters, events related to the Iran war, and more," said Attorney General Nick Brown, adding that Washington would continue to enforce the law and ensure the company is "held accountable for misleading consumers." According to his office, Kalshi's advertisements featured a person texting that they "found a way to bet on the NFL, even though we live in Washington," proving that Kalshi was aware of the violation.
What Kalshi Retains and How It Got Here
Some of Kalshi's business lines were unaffected by the court decision. The Attorney General stated that Kalshi can offer contracts related to commodities, climate, economy, and finance in Washington. Regulators note that the prohibited categories constitute a significant portion of Kalshi's revenue, which has largely depended on sports betting.
The decision in Washington came just days after a legal proceeding in Utah concluded unsuccessfully for the federal government. On August 4, U.S. District Court Judge Robert J. Shelby ruled in favor of the state of Utah and issued a summary judgment stating that Utah's laws prohibiting gambling apply to sports-related contracts.
Why the Cryptocurrency Market is Watching the State Court's Work
Kalshi is an event contract market supervised by the Commodity Futures Trading Commission (CFTC), and the company argues that federal derivatives laws grant the CFTC exclusive jurisdiction, while state gambling laws do not apply in this case. However, state authorities hold the opposite view. Besides Washington, lawsuits against Kalshi have also come from Massachusetts, Michigan, Nevada, and New York, where regulations have been enacted challenging Kalshi's authority. In turn, the CFTC has filed lawsuits against nine states to affirm its federal authority over Kalshi.
On June 12, the CFTC filed a lawsuit against New Mexico, asserting that federal law provides it with primary jurisdiction over event contracts and seeking to prevent New Mexico from applying its gambling regulations to CFTC-approved event contract markets. On July 14, it intervened in Michigan, blocking a modification to Kalshi's order that would have voided past trades made by Michigan residents, requiring the company to settle all open positions.
The Commodity Futures Trading Commission (CFTC) described the cancellation of already settled trades as detrimental and threatening to undermine the integrity of the derivatives market. The conflict escalated on August 11 when the CFTC invoked emergency powers after Kalshi notified the commission of a market emergency arising from a July 31 lawsuit by New York Attorney General Letitia James. The CFTC ordered Kalshi to continue operating in accordance with the core principles of the Commodity Exchange Act. The New York lawsuit aims to prohibit Kalshi from offering event-based contracts nationwide and seeks damages exceeding $36 billion.
According to data from Token Terminal, in July 2026, trading volume on the Kalshi prediction market reached $38.646 billion, while data from Galaxy Research cited by Cryptopolitan suggested a total volume for prediction markets exceeding $150 billion. Macquarie Equity Research estimated in July 2026 that the annual trading volume on the prediction market could reach approximately $1.5 trillion by 2030.
As these platforms increasingly rely on stablecoin settlements and crypto-oriented infrastructure, whether courts treat them as federally regulated derivatives or as state-level gambling operations will help determine how far cryptocurrency trading venues can expand.
