The Crypto Clarity Act Is Moving, and Prediction Markets Are Watching Closely
The Digital Asset Market Clarity Act cleared the Senate Banking Committee earlier this year and passed the House.
Then it stalled for months over a single issue: whether the bill would include ethics provisions restricting federal officials from profiting on digital assets while in office. President Trump, whose family has substantial crypto holdings including the TRUMP memecoin and a stake in World Liberty Financial, was the obstacle. On the evening of July 20, the White House agreed to ethics language and sent it to Senate Republicans, moving the bill closer to a floor vote than it has been at any point this Congress.
The bill needs 60 Senate votes to advance, meaning at least seven Democrats must cross over. Republicans hold 53 seats. As of Monday, Democrats had not seen the agreed ethics language, and none had signed on. The August recess is now just days away. Whether a vote happens before lawmakers leave Washington remains uncertain, with Polymarket odds on the bill passing in 2026 sitting at roughly 43%, up sharply from 32% the prior week but still reflecting real doubt about whether the timeline works.
For the prediction markets industry, the outcome matters well beyond the bill’s primary focus on crypto regulation.
The CLARITY Act Could Have a Major Impact on Prediction Market Oversight
The Digital Asset Market Clarity Act is a comprehensive framework bill designed to answer a question that has bedeviled regulators and courts since Bitcoin became a meaningful asset class: which federal agency regulates which crypto products, and under what rules?
The bill would hand most crypto oversight to the CFTC, leave securities-like tokens with the SEC, protect customer funds in bankruptcy proceedings, and create safe harbors for DeFi developers. It also closes what industry participants call the FTX loophole, a gap in existing law that allowed blending of customer and house funds, and adds insider trading safeguards for digital asset markets.
The CFTC’s expanded role under the CLARITY Act is where prediction markets enter the analysis. The CFTC is already the agency at the center of the prediction markets regulatory fight, claiming exclusive jurisdiction over platforms like Kalshi and Polymarket under the Commodity Exchange Act. Chairman Selig has used that jurisdictional claim to sue states that have tried to restrict the platforms. A bill that formally expands CFTC authority and resources does not change that underlying claim, but it changes the agency’s capacity to defend it and enforce it.
At the July 21 House subcommittee hearing on sports event contracts, Carl Kennedy, a former CFTC lawyer now at Katten Muchin Rosenman, testified that the agency may be too short-staffed to oversee platforms like Kalshi and Polymarket while also taking on the expanded duties the CLARITY Act would bring. “With additional resources,” he said, the CFTC could address new digital asset markets while also managing the explosive growth of prediction markets. The CLARITY Act’s additional funding and authority, if enacted, would give the CFTC tools to do both.
The CLARITY Act May Cut Two Different Ways With Prediction Markets
The CLARITY Act is not straightforwardly good for prediction market platforms, and the industry understands this.
The optimistic reading is that a stronger, better-resourced CFTC is better positioned to defend prediction markets against state enforcement. The agency has been suing states on Kalshi’s behalf, arguing that CFTC jurisdiction preempts state gambling law. A CFTC with expanded legal authority and more staff is a more credible institutional protector of that preemption claim. More resources also mean more capacity to approve new products quickly, which matters for platforms trying to expand their contract offerings.
The pessimistic reading is that expanded CFTC authority means expanded CFTC oversight of the platforms themselves. Right now, the agency’s relationship with Kalshi and Polymarket is primarily protective: it defends their federal licensing against state challengers. A CFTC with a broader mandate and more staff is also a CFTC better able to conduct rigorous market surveillance, enforce compliance requirements, and scrutinize product design decisions that the current understaffed agency lacks the bandwidth to examine closely. The same resources that help the CFTC fight states also help it investigate platforms.
The CLARITY Act’s insider trading provisions add another dimension entirely. The bill adds safeguards against insider trading in digital asset markets. Applied to prediction market contracts, those safeguards would formalize the enforcement framework that has so far relied on the CFTC’s existing commodity fraud authority. The Gabriel Perez teleprompter case, the Van Dyke military intelligence case, and the Spagnuolo Google data case all proceeded under existing law. A CLARITY Act with explicit prediction market insider trading provisions would clarify the legal basis for those prosecutions and potentially expand their scope.
The Tribal Amendment That Could Change Everything For Prediction Markets
The most direct threat to prediction markets embedded in the CLARITY Act’s progress is not in the bill itself. It is in what tribal leaders are trying to add to it, as tribal leaders see a clear opening to address a serious concern.
Tribal gaming representatives pressed the Senate to include a provision in the CLARITY Act that would ban sports prediction market contracts entirely, arguing that allowing federally regulated exchanges to offer sports event contracts undermines tribal gaming sovereignty and violates existing compact structures. David Bean, chairman of the Indian Gaming Association, testified at Tuesday’s House hearing on behalf of tribal interests. The tribes’ argument maps onto the IGRA-based cases we have been following in California and New Mexico: sports prediction markets operate on tribal lands without tribal authorization, and the federal government should resolve that conflict at the legislative level rather than leaving it to the courts.
If Senate negotiators accept a tribal sports prediction market ban as part of the CLARITY Act’s broader package, the bill transforms from an ambiguous development for the platforms into an existential one. A congressional prohibition on sports event contracts would moot every pending court case, remove the CFTC’s ability to defend the products, and end the legal fight that has consumed two years of litigation across a dozen states. It would also require bipartisan support from senators who have heard from both tribal gaming interests and prediction market industry advocates, making its inclusion genuinely uncertain.
What Happens If The CLARITY ACT Passes, and What Happens If It Doesn’t?
A CLARITY Act without a sports prediction market ban helps prediction market platforms more than it hurts them, primarily through the CFTC capacity argument. A CLARITY Act with a ban ends the sports prediction market fight in the states’ favor legislatively rather than judicially.
A failed CLARITY Act leaves the current landscape intact: the Sixth Circuit hears oral arguments Wednesday on the Ohio and Tennessee appeals, the New Jersey Supreme Court petition is pending, the CFTC NPRM on event contracts is accepting comments through July 27, and the platforms continue operating under the protection of Chairman Selig’s exclusive jurisdiction claim without congressional validation of that claim.
The platforms would probably prefer a clean CLARITY Act passage without the tribal amendment. They would probably prefer a failed CLARITY Act to one with the ban. What they cannot control is which version emerges from a Senate negotiation they have no seat at, conducted against a deadline that may force legislative shortcuts that benefit whichever interest group has the strongest relationships with the seven Democrats who decide this.
House Ag Subcommittee Chair Dusty Johnson closed Tuesday’s hearing by saying that while the courts or the CFTC may ultimately clarify the legality of sports prediction markets, Congress should not be silent and that he thinks there is work for them to do. Whether that work gets done before the August recess, and in what form, is the question the prediction markets industry is watching more closely than any court ruling this week.
Players trust our reporting due to our commitment to unbiased and professional evaluations of the iGaming sector. We track hundreds of platforms and industry updates daily to ensure our news feed and leaderboards reflect the most recent market shifts. With nearly two decades of experience within iGaming, our team provides a wealth of expert knowledge. This long-standing expertise enables us to deliver thorough, reliable news and guidance to our readers.
Latest News
