Is Kalshi Legal? Inside the Court Battles Deciding Whether Prediction Markets Are Trading or Gambling

Kalshi is a federally regulated exchange, and using it is legal for most Americans. However, whether its most popular products are lawful now depends on which state you are in. On July 7, 2026, US District Judge Analisa Torres, the same judge who presided over the SEC’s long-running lawsuit against Ripple, refused to shield Kalshi’s sports-event contracts from New York’s gambling laws, marking the company’s most significant courtroom defeat yet in a nationwide fight that legal experts say is headed for the Supreme Court.

This guide explains what Kalshi is, what the courts have actually decided, where the platform stands in each contested state, and why the outcome matters far beyond prediction markets, including for crypto exchanges such as Coinbase and Gemini, which have already been pulled into the same fight.

Legal Federally, Contested by the States

Kalshi operates a designated contract market registered with the Commodity Futures Trading Commission (CFTC), the US derivatives regulator. 

Users buy and sell “event contracts,” financial instruments that pay out based on the outcome of real-world events, ranging from Federal Reserve rate decisions and political elections to sports results. Kalshi’s core legal position is that these contracts fall under the Commodity Exchange Act (CEA), placing them under exclusive federal jurisdiction and beyond the reach of state gambling regulators. The CFTC agrees: Chairman Michael Selig has described the agency’s jurisdiction over commodity derivatives markets, including prediction markets, as “exclusive.”

However, the states strongly disagree, and their numbers are growing. Kalshi is currently facing lawsuits or enforcement actions from officials in a long list of states, including Arizona, Kentucky, Massachusetts, Nevada, and Washington, in addition to New York, Michigan, Ohio, and others. 

Arizona was among the first states to escalate, filing suit against the platform. Sports and gaming law attorney Daniel Wallach estimates the New York case is one of roughly 30 to 40 lawsuits pending across the United States involving prediction markets.

So the honest answer to “is Kalshi legal?” is: yes at the federal level, yes in most states, and actively disputed, with real enforcement consequences, in a growing list of others, particularly for sports markets.

The New York Ruling: What Judge Torres Actually Decided

The New York dispute began in October 2025, when the state’s gaming commission ordered Kalshi to stop offering what it called unlicensed sports event contracts, prompting Kalshi to sue.

On July 7, 2026, Judge Torres of the Southern District of New York denied Kalshi’s request for a preliminary injunction, holding that the federal Commodity Exchange Act does not supersede New York’s gambling laws as applied to Kalshi’s sports-event contracts. Her reasoning matters more than the result, because it attacks the foundation of Kalshi’s entire national strategy:

• No preemption: Regulating gambling is a traditional state power. So, courts presume Congress did not displace state law unless it clearly said so. Judge Torres found that the CEA contains language preserving the authority of other regulators rather than erasing it. Notably, she declined to resolve the question that has split other courts, whether sports contracts qualify as federally regulated swaps at all, assuming they do and finding New York’s laws survive anyway.
• Compliance is possible: Torres wrote that Kalshi has not shown it is impossible to comply with both New York gambling law and the CEA, noting nothing prevents the company from obtaining a New York license.
• The balance of interests favored the state: The ruling stated that New York’s interests in preventing gambling addiction, preserving the integrity of sports, and avoiding a proliferation of unregulated contracts “heavily” outweigh Kalshi’s interests.
• No irreparable harm: The injuries cited by Kalshi, compliance costs and potential penalties, were treated as monetary losses that can be compensated later, not the irreparable harm an injunction requires. Torres dismissed the Gaming Commission itself from the case on immunity grounds, though the suit against its officials continues.

Kalshi appealed the decision the same day to the US Court of Appeals for the Second Circuit. Governor Kathy Hochul and Attorney General Letitia James welcomed the ruling in a joint statement, saying, “New York’s gambling laws are designed to protect consumers,” they said. “We will continue to hold all gambling platforms accountable to the law – and that includes prediction markets.”

The venue amplifies the stakes: New York is the largest legal sports-betting market in the United States, and Wallach has warned that the decision is likely to produce knock-on effects in other pending cases.

Trading or Gambling? The Question Underneath All of It

Strip away the case captions, and every single one of these lawsuits asks the exact same question: when a user pays money for a contract that pays out if their team wins, are they trading a derivative or placing a bet?

Kalshi’s argument:

Its contracts are two-sided markets whose prices reflect probability, functionally similar to the futures a farmer uses to hedge crop prices, an analogy the CFTC itself has advanced in court. Because Kalshi is a CFTC-designated exchange, the argument goes, the CEA gives the federal government exclusive jurisdiction, and a patchwork of 50 state regimes cannot apply.

The states’ argument:

A contract on a game’s outcome is a sports wager in financial clothing. States have regulated gambling for more than a century, and run their own licensing, taxation, and consumer-protection regimes. They see prediction markets as sidestepping all three. Michigan’s gaming regulator has accused Kalshi of marketing sports betting to residents while presenting it as an investment product.

The precedent both sides invoke:

In Murphy v. NCAA (2018), the Supreme Court struck down the federal sports-betting ban. Wallach argues that when Congress does not directly regulate sports gambling, states are free to act on their own, making the Torres decision consistent with established preemption principles. Kalshi’s counter is that Congress did legislate via the Commodity Exchange Act, and that its exchange operates under that federal regime.

No court has answered the question definitively for the whole country. That is precisely why the map below looks the way it does.

The Scorecard: Where Kalshi Has Won and Lost

Federal and state courts have split, producing a patchwork that changes almost weekly. Kalshi secured protective orders in New Jersey, where a federal appeals court backed the company earlier in 2026, and in Tennessee, while losing comparable bids in Maryland, Arizona, and Nevada

State-by-State Legal Status (As of July 10, 2026)

Jurisdiction	Status	Detail
New Jersey	Kalshi win — headed to SCOTUS	The Third Circuit ruled Kalshi is likely to succeed on federal preemption, allowing it to operate while the appeal proceeds. New Jersey is petitioning the Supreme Court
Tennessee	Kalshi win	Court order shields Kalshi from state enforcement
New York	Kalshi loss — on appeal	July 7 injunction denial; appeal filed with the Second Circuit; the case proceeds to the motion-to-dismiss stage
Michigan	Kalshi restricted	June 29 temporary restraining order bars sports contracts; Kalshi has begun blocking Michigan users; hearing scheduled July 13
Nevada	Kalshi loss	District court injunction against operations; the state Supreme Court denied Kalshi’s emergency motion; appeal to the Ninth Circuit
Ohio	Kalshi fined — fighting back	$5 million Casino Control Commission fine over alleged evasion of the state’s 20% sports-betting tax and age-verification failures, upheld by a lower court; the CFTC filed a Sixth Circuit amicus brief
Arizona	Kalshi loss	A federal judge denied Kalshi’s TRO and injunction motions in April; the case is now before the Ninth Circuit.
Maryland	Kalshi loss	Injunction bid denied

In short, Kalshi’s federal-preemption argument has persuaded some courts and failed before others, a genuine appellate split, which is the classic setup for Supreme Court review.

The Government Is Fighting Itself: CFTC vs. the States

The strangest feature of this legal battle is that the federal government is actively suing states on Kalshi’s side of the argument.

New York filed lawsuits on April 21, accusing Coinbase Financial Markets and Gemini Titan of promoting gambling through their own event contracts, and the CFTC sued New York three days later. The agency said last month it challenged similar regulatory activity in Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, Rhode Island, and Wisconsin.

Chairman Selig has argued the CFTC’s commodity-derivatives jurisdiction is broad enough to cover event contracts on sports, politics, and nearly everything else, and has said the agency had to step in when state regulators began suing its registered exchanges. In one Ninth Circuit case, the CFTC, joined by Arizona and Illinois plaintiffs’ postures aside, secured an injunction against Connecticut’s enforcement, a ruling itself likely bound for the Supreme Court.

However, the Torres ruling cuts against the CFTC’s own litigation: a federal court has now held, at the preliminary stage, that the statute underpinning the agency’s exclusivity claim does not preempt state gambling law.

There is a familiar echo here for readers who follow US crypto regulation: as with the CLARITY Act fight, an agency’s assertion of jurisdiction is proving a weaker foundation than a statute. Courts can, and here, did decline to read exclusive authority into the CEA. Only Congress can settle the question definitively.

Why Crypto Should Care

This may read like a gambling-industry story, but the crypto exposure is direct.

Crypto exchanges are already defendants: New York’s April 21 lawsuits target Coinbase Financial Markets and Gemini Titan over their event-contract offerings. Whatever standard the courts set for Kalshi will apply to them.

Kalshi’s growing crypto infrastructure: The platform has tokenized its event markets on the Solana blockchain, where DeFi protocols like DFlow and Jupiter connect its order book to on-chain liquidity. John Wang, Kalshi’s Head of Crypto, has noted this move is designed to tap deeper pools of capital. A regulated, CFTC-overseen contract living on a public blockchain and composable with DeFi is a template the entire tokenization industry is watching. Its legal foundation is precisely what these lawsuits contest.

The money is enormous and growing: Kalshi’s notional trading volume rose roughly 70% month-over-month in June 2026 to more than $31 billion, exceeding $1 billion per day since the FIFA World Cup began. Blockchain intelligence firm TRM Labs measured the sector’s monthly volume growing from $1.2 billion in early 2025 to $20 billion by January 2026. Kalshi closed a $1 billion Series F in May at a reported $22 billion valuation, with backers spanning Coatue, Sequoia, Andreessen Horowitz, Paradigm, Morgan Stanley, and ARK Invest.

Investors, in other words, are pricing in a total legal victory that the court system has not yet actually delivered.

What Happens Next

Four tracks to watch, each of which will trigger an update to this page:

• The Supreme Court: New Jersey is moving its Third Circuit loss toward the high court. A grant of certiorari would put the trading-vs-gambling question before the justices.
• The Second Circuit: Kalshi’s appeal of the Torres ruling is top priority. A reversal would restore its position in the country’s biggest sports-betting market; an affirmance deepens the appellate split.
• State enforcement: Michigan’s July 13 hearing; New York regulators now cleared to act while the appeal proceeds, with the underlying case moving toward the motion-to-dismiss stage.
• Congress. Wallach’s summary of Kalshi’s options is blunt: win in the appeals courts, win at the Supreme Court, get Congress to change the law, or get licensed under state law.

For now, the practical answer for day-to-day users remains unchanged: Kalshi remains live, operational, and federally regulated across the majority of the US, sports contracts are blocked or contested in a handful of states, and the platform’s compliance geofencing obligations are expanding. The legal answer, the one worth billions, is still being written.

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