US stalemate in the fight over prediction market regulation: financial market or gambling?

The stalled Digital Asset Market Clarity Act in the US Senate exposed a far broader conflict than disagreements over cryptocurrencies alone. Prediction markets are increasingly at the centre of the debate, along with a fundamental question: should trading contracts on sports, elections and other real-world events be treated as financial market activity or as gambling?

On 15 September 2026, the US Senate failed to advance consideration of the Digital Asset Market Clarity Act (CLARITY Act). The procedural step required 60 votes, but the result was 49 to 50. This was not a final vote on the bill itself – the Senate could not muster enough votes even to move to further consideration.

The bill was primarily designed for the US digital asset market. It aimed to bring greater clarity to the status of crypto assets and to the division of jurisdiction between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Yet the bill's consideration became yet another front in the rapidly growing fight over the legal status of prediction markets in the United States.

Prediction markets or sports betting?

In prediction markets, users trade contracts whose value depends on the outcome of a future event. That can be elections, economic indicators, central bank decisions, technology milestones or sports results.

In the US, some of these markets operate under the federal regulatory framework for commodities and derivatives, with the CFTC at its centre.

This is where the conflict arises.

From the perspective of the traditional gambling industry and some Native American tribal organisations, when a prediction platform allows trading in a contract – for example, on the winner of an NFL game – the product becomes, in economic substance, very similar to sports betting.

If such a product can be offered as a federally regulated event contract, the question arises whether this effectively circumvents the gambling regulatory systems built by states and tribes.

Ahead of the vote, the Indian Gaming Association urged Congress to make clear that federal commodities market regulation cannot override or circumvent the rights of states and tribes to regulate gambling. The organisation also sought a prohibition on CFTC-regulated platforms offering sports betting or casino-style prediction contracts.

Why did the CLARITY Act become a prediction market battleground?

The CLARITY Act itself was not designed as a prediction market bill. Its primary purpose was to establish clearer rules for the US crypto asset market.

However, the proposed expansion of the CFTC's role raised concerns that it could also strengthen the federal regulator's position in the broader dispute over event contracts.

A group of US senators had urged, even before the vote, that additional safeguards be added to the bill. They argued that without them, decentralised and CFTC-supervised platforms could offer sports or casino-style products, bypassing state and tribal gambling regulation.

The fate of the CLARITY Act therefore mattered not only to crypto companies.

It became part of a much broader US debate:

where does a financial event contract end and gambling begin?

49 to 50 – but this is not a ban on prediction markets

It is important to stress that the Senate vote did not ban prediction markets in the US.

Nor was any decision taken that event contracts must be treated as gambling.

The Senate simply failed to gather the 60 votes needed to procedurally move the CLARITY Act forward. As a result, one possible route for Congress to draw clearer boundaries around digital asset – and, indirectly, prediction market – regulation has for now stalled.

This means the core legal conflict remains.

• On one side stands federal financial and commodities market regulation.
• On the other, the jurisdiction of states and tribes over sports betting and other forms of gambling.
• In between sits the rapidly growing prediction market industry.

Crypto – another dimension of the conflict

The cryptocurrency and prediction market ecosystems are closely intertwined, yet crypto poses another paradox for gambling regulators.

Strictly restricting the use of cryptocurrencies on licensed sports betting platforms can hand an advantage to foreign or unlicensed operators that accept such payments.

In a 2026 US survey commissioned by Paysafe, 64% of active online sports bettors said they hold cryptocurrencies.

A further 83% of respondents said they would like to use cryptocurrencies to fund their sports betting accounts if allowed, and 85% were interested in receiving payouts in crypto. The survey involved 2,550 respondents across nine US states.

This points to a broader regulatory dilemma: overly strict regulation does not necessarily eliminate demand – it may push part of it towards less controlled platforms.

The fundamental question remains unanswered

The failure of the CLARITY Act shows that prediction market regulation long ago stopped being a purely technological issue.

It is becoming a question of which category of economic activity prediction markets belong to in the first place.

If a person buys a contract on:

Will the US Federal Reserve cut interest rates in December?

– it can be seen as information aggregation and a financial market.

But if the same platform is trading a contract on:

Will Team A beat Team B tonight?

– the economic similarity of the product to a traditional sports bet becomes far more evident.

This boundary is becoming one of the most important regulatory questions for the growing prediction market industry.

The US debate matters for Europe too

The conflict unfolding in the US deserves close attention in Europe as well.

As prediction markets grow, European countries may also have to answer similar questions: are event contracts financial instruments, gambling, crypto asset products, or do they require a separate regulatory category?

Equally important is whether a uniform regulatory approach is suitable for prediction markets at all.

Markets forecasting election results, inflation, GDP, interest rates or geopolitical events may serve an economic and societal purpose entirely different from short-term sports outcome contracts.

Future regulatory debates may therefore need to assess not only how a prediction market operates, but also what kind of events are traded on it.

The LPMI perspective

From the perspective of the Lithuanian Prediction Markets Institute (LPMI), the US debate highlights the need to clearly distinguish between different categories of prediction markets and their purposes.

Prediction markets can be used for more than speculation. They can act as a collective information aggregation mechanism, helping to assess the probabilities of political, economic, technological and other events.

At the same time, the rapid growth of sports event contracts raises legitimate questions for regulators about the line between prediction markets and traditional betting.

The US is currently seeking an answer to this question through the CFTC, Congress, state regulators and the courts.

Europe now has the opportunity to observe this process and decide whether existing financial and gambling legal categories are sufficient for this new market, or whether a regulatory model tailored specifically to prediction markets will eventually be needed.

The CLARITY Act vote did not settle this dispute. Quite the opposite – it made it clearer than ever that one of the most important questions for the future of prediction markets will be not technology, but their legal identity.