Crypto companies are following this case closely. A panel of judges grilled lawyers for the US Commodity Futures Trading Commission (CFTC) and prediction betting platform Kalshi over the company’s efforts to launch political prediction markets in the US.

However, while the court was reviewing the lower court’s decision allowing the offering of these products, it did not give an indication as to whether Kalshi would be able to offer these products.

CFTC General Counsel Rob Schwartz and Jones Day Partner Yaakov Roth took turns explaining whether the appeals court should have blocked Kalshi from listing these event contracts.

Thursday’s hearing came just days after a federal judge ruled that the CFTC could not block Kalshi from listing political prediction markets, a decision that would allow Kalshi to list prediction contracts on how control of the House and Senate will take shape.

However, that decision was temporarily halted after the CFTC quickly filed a request for an emergency stay.

Throughout the 2.5-hour hearing, the justices did not seem particularly impressed by either side’s arguments. Various arguments or explanations were found to be implausible, and in-depth questions were asked about what certain terms of the Commodity Exchange Act meant.

The justices did not address questions about what an event contract actually was until the final two hours of the hearing.

CFTC’s Schwartz, D.C. He called District Court Judge Jia Cobb’s Sept. 12 ruling “seriously flawed” and said it could have allowed Kalshi and other companies to immediately launch “high-risk” betting markets.

“If this were to happen, the damage to the public would be significant, and I don’t want to exaggerate, but Americans generally believe our democracy is under threat,” Schwartz said.

“In order to obtain a stay order, the Commission must show two things: a basis in favor of the decision and evidence that irreparable harm would result if the stay order is not issued. I argue that the CFTC has failed on both counts,” Roth said in his opening statement.

Roth said $50,000 was deposited in Kalshi’s two political event engagements for about eight hours while the products were active. The CFTC’s arguments centered on the agency’s inability to oversee key events such as U.S. elections.

Market participants may distort markets to suggest that one candidate is outperforming another, which will be harder to correct than other markets, Schwartz said.

One judge asked whether the other side would stand up to a bet made for manipulative purposes: “Is someone going to take it from the other side and frustrate them? Is that what it’s supposed to be?”

This should happen, Schwartz said, but political prediction markets can be prone to manipulations that cannot be easily corrected. “Because the sources of information reflected by these markets are opaque and unreliable. I’m talking about bad methodologies, fake surveys, pollsters with agendas, false news and fake news,” he said. “In normal futures contracts there is a reliable, objective indicator, like a published index report.”

Schwartz said that if these markets are manipulated, it could both harm market participants and jeopardize election integrity, and then made a distinction between political event contracts and other types of betting. For example, he stated that there cannot be too much “playing around” in forecasts for an earthquake.

Speaking on Kalshi’s behalf, Roth argued that a stronger market would be less vulnerable to such manipulations.

Noting Kalshi’s $1 billion transaction volume at Polymarket, which does not offer services in the U.S. but continued operations after striking a deal with the CFTC, the CFTC’s argument is essentially that it would be better for an overseas provider to offer these products than for Kalshi to do so. He said he suggested it.

“The bottom line is that the way to mitigate these risks is to allow Kalshi to offer its markets because currently these activities occur in unregulated markets, open to foreign traders and unattended,” Roth said.

“There is no transparency. We don’t know who is buying and selling cryptocurrencies. If this had happened in Kalshi’s markets, all such regulations would have been in place.” He added that the CFTC failed to demonstrate a risk that Kalshi’s continued listing of event contracts could cause “irreparable harm.”