Kalshi in 'Impossible Situation' Due to Conflicting Orders from CFTC and Michigan: Jurisdictional Dispute Over Prediction Markets Intensifies

On July 15, 2026, prediction market platform Kalshi officially declared that it is in an 'impossible position' due to conflicting orders from federal regulators and state authorities. While a Michigan court ordered the cancellation of certain trades, the Commodity Futures Trading Commission (CFTC) directed the completion of those same trades, leaving Kalshi in a situation where it faces legal sanctions regardless of which side it follows.

We are disappointed in this decision and believe it is unfair to Kalshi.

This situation arose from a direct conflict between the state's authority to regulate gambling and the federal government's authority to oversee derivatives. Kalshi attempted to cancel trades involving Michigan residents, but the CFTC exercised emergency powers to block the move, effectively paralyzing the platform's operational autonomy. This jurisdictional clash is casting significant legal uncertainty over the entire prediction market.

Michigan's June Crackdown: A $120,000-a-Day Ultimatum

The conflict began in late June 2026 when Michigan authorities took strong legal action against Kalshi. Michigan Attorney General Dana Nessel secured a temporary restraining order on June 29 to halt Kalshi's operations in Michigan, followed by the Michigan Gaming Control Board (MGCB) joining in to sharply criticize Kalshi's business practices.

• Allegations of providing unlicensed sports betting to Michigan residents, particularly 18-year-olds
• Notice of massive fines amounting to $120,000 (approx. 160 million KRW) per day for violations of state law
• Order for immediate suspension and refund of all related transactions within Michigan

The MGCB maintained a firm stance, defining Kalshi as an unlicensed gambling operation threatening Michigan families. Accordingly, Kalshi attempted to comply with the state government's demands by pushing for internal rule changes to suspend transactions for Michigan residents starting June 30, 2026, and to void and refund existing transactions.

However, Kalshi simultaneously pushed back against the state's actions, emphasizing that it falls under the exclusive jurisdiction of the federal government. Kalshi's head of public relations, Elizabeth Diana, stated that they disagree with the state's decision and will fight it in court, criticizing the state's measures as representing the interests of existing monopolies rather than consumer protection.

The CFTC's Federal Counterattack and Order to Execute Transactions

The situation took a sharp turn on July 14, 2026, when the CFTC intervened. The CFTC issued a stay on the emergency rule changes Kalshi had submitted in accordance with the Michigan state court's order. This action prohibited Kalshi from canceling and refunding transactions for Michigan residents at the federal level, directly contradicting the state court's order.

Exercising its emergency powers, the CFTC ordered Kalshi to execute all pending transactions that had already been entered into as originally planned. By having a federal regulatory agency effectively ignore the state court's order and issue the opposite instruction, Kalshi was plunged into a dilemma where following state law would mean violating federal law, and following federal law would result in massive fines under state law.

Jurisdiction War: Federal Supremacy vs. State Gambling Laws

The core of this dispute lies in whether the federal government's "exclusive jurisdiction" under the Commodity Exchange Act (CEA) is recognized. Kalshi argues that since its prediction market contracts are derivatives protected by federal law, state gambling regulations are preempted by federal law and thus lose their effect. This is based on the legal principle that federal law takes precedence over state law.

On the other hand, several state governments, including Michigan, argue that prediction markets are substantially similar to sports betting, which falls under the states' inherent authority to regulate gambling. The MGCB is increasing pressure by clearly distancing itself from prediction market platforms, such as by withdrawing from a national association that maintained cooperation with Kalshi, and there are signs that this trend is spreading to other states.

Industry experts believe this case will serve as an important precedent that will determine the future of prediction markets in the United States. If the federal court rules in favor of Kalshi, state regulatory attempts will be neutralized; however, in the opposite case, prediction markets risk having their market integrity and liquidity significantly undermined by being blocked by different regulatory barriers in each state.

Future Outlook: Clues to a Judicial Resolution

Kalshi is reportedly considering filing for a preliminary injunction in federal court to block Michigan from imposing fines. Urgent intervention by the federal court is desperately needed to prevent "irreparable harm" that Kalshi could suffer until the jurisdictional dispute is finally resolved.

The court's decision in the follow-up hearing scheduled for late July 2026 is the most critical factor in this situation. Prediction market users and industry stakeholders are closely monitoring the impact that the conflict between federal and state authorities will have on the credibility of the market as a whole, watching to see if Kalshi can escape this "impossible situation."