US CFTC Chairman: Unregulated prediction markets could be the next FTX

The US Commodity Futures Trading Commission (CFTC) chair, Michael Selig, has warned of the risks of failing to regulate prediction markets. Selig believes the sector could collapse like the failed crypto exchange FTX if there are no clear rules in place. Selig shared his view in an interview  on Farokh Radio with crypto founder Farokh Sarmad

Selig Wants Prediction Market to Stay in the US

According to the CFTC chair, who assumed office less than four months ago, clear rules are crucial for the sector. He explained that it is when rules are in place that builders will be able to innovate in the country.

Selig criticized the previous administration for failing to do this and for forcing many platforms to go offshore due to regulatory enforcement. He now intends to change that, noting that it would be a disservice not to regulate the sector.

He said:

“The failure of agencies to actually regulate to do their job, and that policy is such a disservice to the builders and innovators and everyday Americans, who want to access these products. We saw FTX and the implosion of crypto firms. I’m concerned we’ll see the same with prediction marks if we keep pushing it offshore into the unregulated space.”

In his view, prediction platforms need to be registered in the US, where they are regulated. This way, the CFTC can ensure they follow rules that ensure fair market and consumer protection.

However, the CFTC chair believes such rules should be permissive. While he acknowledged the need to regulate areas of public interest, Selig believes that the rules should not be paternalistic.

His comments come at a time when prediction market platforms such as Kalshi and Polymarket are facing scrutiny even as they grow more popular.  There are now several lawsuits against these platforms from states.

Meanwhile, Selig expressed surprise at the pushback from state regulators against the prediction platforms. According to him, this is mostly due to a misunderstanding of the rules guiding prediction platforms.

However, he insisted that the CFTC’s jurisdiction on derivatives is undisputed while adding that the federal agency is willing to work with the states. CFTC recently issued guidance on prediction markets along with an Advanced Notice of Proposed Rulemaking for the sector.

CFTC Chair Highlights Collaboration with SEC in Regulating Crypto

Interestingly, Selig also discussed the importance of crypto in the grand scheme of things. According to him, prediction markets, AI, and crypto are three critical verticals that the US must not miss out on to remain the hub of technology and innovation.

He noted that the CFTC has authority to regulate crypto, especially derivatives products and spot margin trading. Still, he believes there is a need for legislation to future-proof and ensure regulatory advancements remain even when administrations change.

The chair stated that CFTC has been working with the Securities Exchange Commission (SEC) to regulate the crypto industry.  However, he believes that the Market  Structure Act is necessary to fully future-proof the crypto regulatory regime.

He said:

“We’re really at the cusp of getting a great new regime for crypto assets in place, and I think once the rules and legislation are in place, the businesses will follow it and start.”