By Lina Irawan 
A recent, comprehensive analysis by CNN brought the scale of this activity into sharp focus, revealing staggering figures. So far this year, users between the ages of 18 and 21 have traded an estimated $5.4 billion on Kalshi. A significant portion of this volume, approximately $3.9 billion, was specifically tied to sports-related events. While a spokesperson for Kalshi stated that users in this 18-21 age bracket constitute merely 3.14% of its overall trading volume, the raw dollar figure is alarming to critics. If 3.14% of the total volume equates to $5.4 billion, it implies Kalshi’s overall market volume is a colossal $172 billion, underscoring the immense financial activity flowing through the platform and the disproportionate exposure of young adults to sports-related contracts.
The crux of the regulatory conflict lies in this fundamental distinction. In most states across the U.S., engaging in sports gambling is strictly prohibited for anyone under the age of 21. These age limits are not arbitrary; they are established through extensive legislative processes, rooted in public health concerns, developmental psychology, and a societal consensus that younger individuals lack the fully developed cognitive capacity for risk assessment and impulse control necessary to engage responsibly in activities with high addictive potential. State gambling commissions, which regulate traditional sportsbooks and casinos, enforce these age restrictions rigorously, often requiring robust identity verification processes.
Kalshi, however, operates under a different legal framework. It asserts that its "event contracts" are financial instruments, much like futures or options, and therefore fall under the jurisdiction of the CFTC. The CFTC’s mandate is to regulate commodity futures and options markets in the U.S., ensuring their integrity, preventing market manipulation, and protecting market participants. Crucially, the CFTC typically allows individuals aged 18 and older to participate in these markets, reflecting a different set of assumptions about financial literacy and risk tolerance compared to gambling. This regulatory divergence allows Kalshi to welcome users as young as 18, creating what many critics decry as a glaring loophole in established gambling laws, particularly concerning sports-related predictions.
The operational mechanism of Kalshi’s platform further fuels this debate. Users can purchase an "event contract" with a binary, yes-or-no outcome tied to a real-world event. Kalshi’s exchange then matches this user with another user taking the opposite position. The platform acts as an intermediary, facilitating the transaction, and pays out only the person who chose the correct outcome. Kalshi emphasizes that it does not set odds, does not act as a counterparty to the trade, and does not profit from customer losses—a key distinction it draws from traditional sportsbooks, which directly take bets and profit from the house edge. This peer-to-peer matching system is central to Kalshi’s argument that it is a neutral financial marketplace, not a gambling operator.
For sports, this means users can enter into contracts predicting outcomes ranging from whether a specific team will win a particular game to whether a team will advance to a championship. Beyond sports, Kalshi also offers contracts on a diverse array of other events, such as midterm election results or whether a given year will be the hottest on record. This breadth of offerings, while seemingly diversifying its portfolio, does little to assuage critics when it comes to the sports category, given the deeply ingrained cultural association of sports outcomes with betting.
Despite Kalshi’s assertions, the resemblance to gambling is striking, particularly with features like "combos." These allow users to wager on the outcome of multiple events simultaneously, much like a "parlay" bet in traditional sports gambling. In a combo, all chosen outcomes must be correct for the user to win, significantly increasing the risk and potential payout, a characteristic feature of high-stakes gambling. This functional similarity between "combos" and "parlays" further blurs the line between financial trading and conventional betting in the eyes of state regulators and anti-gambling advocates.
The legal battleground is heating up. New York State has taken aggressive action, suing to shut down Kalshi, alleging it is operating an unlicensed gambling platform within its borders. This lawsuit represents a significant challenge to Kalshi’s business model and the CFTC’s authority, asserting the state’s traditional power to regulate gambling within its jurisdiction. If New York succeeds, it could set a powerful precedent for other states looking to impose their gaming laws on prediction markets.
Further illustrating the growing pushback, a coalition of 44 state attorneys general formally argued in a letter last month that the CFTC’s proposed prediction-market rules exceed its authority and intrude on states’ traditional power to regulate sports gambling. This unified front from a vast majority of states underscores the widespread concern among state governments about the expansion of these markets, particularly concerning youth access and the potential erosion of state-level consumer protections.
Adding to Kalshi’s legal woes, a recent ruling by the 9th U.S. Circuit Court of Appeals delivered a significant blow by allowing Nevada’s government to impose state law against Kalshi’s sports-related event contracts. This effectively blocks Kalshi from offering such contracts in Nevada unless it complies with the state’s stringent gaming laws, including its age restrictions and licensing requirements. The Nevada ruling is a landmark decision, as it potentially paves the way for other states to assert their regulatory authority over prediction markets, creating a fragmented and challenging legal landscape for platforms like Kalshi.
Consumer advocates are particularly vocal about the dangers posed to young adults. Les Bernal, the national director of Stop Predatory Gambling, expressed profound concern to Fortune, highlighting the vulnerability of young people to such platforms. "They try to create this experience, it’s like a video game type experience, in pushing this on young people," Bernal stated, drawing a direct parallel between the platform’s design and addictive digital entertainment. He emphasized the scientific evidence pointing to the highly addictive nature of these products, which he believes can cause "incredible harm."
Bernal’s concerns are substantiated by scientific research. A peer-reviewed paper published in Science in April specifically warned that the design of commercial prediction markets could create significant risks of behavioral addiction. The research delved into the psychological mechanisms at play, explaining that "continuous novelty and infinite event streams eliminate stopping points, possibly weakening prefrontal inhibitory control." This architectural design, the journal stated, "maximizes trading volume rather than forecasting accuracy, potentially driving neuroadaptation toward compulsive use in vulnerable individuals as rewards fade." This neurobiological explanation suggests that the very structure of these markets is engineered to foster engagement that can cross the line into addiction, especially for developing brains that are still maturing in areas related to executive function and impulse control.
Kalshi, for its part, maintains that it should not be regulated in the same manner as sports betting or online casinos. In testimony earlier this year opposing a Connecticut bill that would have raised the minimum age for using prediction markets to 21 (a bill that ultimately did not pass), the company articulated its position: "Kalshi does not set odds, does not act as a counterparty, and does not profit from customer losses. It operates a neutral, two-sided marketplace where standardized, fully collateralized contracts are traded at prices determined by supply and demand." This argument hinges on the financial nature of the contracts and the market mechanism, rather than a direct betting relationship with the platform.
However, critics argue that this distinction is semantic rather than substantive, particularly when the underlying events are sports outcomes and the participants are young adults. The absence of traditional investor protections, which are standard in regulated financial markets, is also a concern. These protections typically include suitability requirements, comprehensive risk disclosures tailored to specific investor profiles, and mechanisms for investor recourse. For young adults, who may have limited financial literacy and be more susceptible to aggressive marketing or the thrill of potential gains, the absence of such safeguards is particularly problematic.
The broader implications of this regulatory standoff are significant. The unchecked growth of prediction markets, particularly those catering to sports-related events, could lead to an increase in problem gambling among young demographics. Public health experts warn that early exposure to high-risk financial or gambling activities can have long-lasting negative consequences, including financial distress, mental health issues, and impaired academic or career performance.
As the legal and political battles continue, the future of prediction markets like Kalshi remains uncertain. The Nevada ruling and the collective stance of state attorneys general suggest a growing momentum toward state-level regulation or, at the very least, a stronger assertion of state authority. This could lead to a fragmented regulatory landscape where Kalshi’s offerings vary significantly from state to state, or it could force a reevaluation of federal oversight and the CFTC’s role. Ultimately, the debate boils down to a fundamental question: Is this financial innovation, a legitimate market for hedging and price discovery, or is it a cleverly disguised form of gambling that exploits a regulatory loophole to engage a vulnerable demographic in high-risk activities? The billions of dollars traded by those as young as 18 suggest that the answer will have profound consequences for both the financial industry and public welfare.
