Ripple Effects: What New SEC Leadership Could Mean for Crypto-Based Prediction Markets

As Paul Atkins is slated to head the U.S. Securities and Exchange Commission, regulatory clarity could foster innovation in crypto prediction platforms

RELATED POSTS

Though the Securities and Exchange Commission (SEC) does not regulate prediction markets, Donald Trump’s nominee for SEC chair, Paul Atkins, will have an important role in building the industry over the next four years. 

 A former SEC commissioner from 2002 to 2008 and a free-market conservative, Atkins is expected to take a hands-off approach to crypto and other finance startups. His experience and philosophy make him one of Trump’s least controversial Cabinet picks, as you can see on Kalshi, a CFTC-regulated prediction market, which gives him a 92% chance of Senate confirmation. Trade volume has reached over $800,000, making it a market that traders are paying attention to. 

The SEC doesn’t regulate commodities, the type of financial instrument that prediction market contracts are. However, the SEC has run into conflicts with emerging crypto companies over whether the regulatory agency has authority over newly introduced crypto products. Ripple Labs sued the SEC over whether the SEC had the authority to regulate its product. (A judge ruled that the SEC lacked authority over Ripple Labs’ product in 2023.)

So, a pro-crypto SEC chair isn’t someone introducing new regulations to govern crypto products—it’s a chairman who decides the SEC lacks authority to regulate crypto products at all.

A weak SEC, a strong CFTC

One of the most pressing questions about the crypto industry is a basic one: who’s in charge of regulating it? If cryptocurrencies are securities, then the SEC oversees them. But if they’re commodities, then the Commodity Futures Trading Commission (CFTC) oversees them. Both agencies have different rules, making this a crucial question to resolve if the industry wants to grow to compete with traditional financial products. 

In the Ripple Labs case, a federal judge ruled that XRP, Ripple Labs’ crypto token, “is not in and of itself a “contract, transaction[,] or scheme” that embodies the Howey requirements of an investment contract.” Since XRP failed to meet all the requirements to be a security, it put many cryptocurrencies and products under the CFTC’s jurisdiction. 

That’s one reason the Trump administration plans to give the CFTC authority to oversee crypto exchanges, which would answer a vital question for the crypto industry. 

Additionally, since the CFTC already regulates prediction markets, a popular product among crypto companies, parts of the prediction market industry would benefit from regulatory clarity. For example, if someone wanted to start a prediction market on the Solana blockchain, then the rules that the company would have to follow would be clear from the beginning. There would be less regulation through expensive lawsuits and less regulatory risk surrounding new companies. 

An SEC chair relinquishing a claim to crypto products plays a small but vital role in supporting crypto regulation broadly and prediction markets as a small consequence. 

Buy JNews
ADVERTISEMENT

Join the

Prediction News Community

Featuring prediction market
analysis, data insights
plus
comprehensive industry reporting

Prediction Platforms

Who will win the 2024
US Presidential Election?

Loading..

Loading..

Loading..

Loading..

Loading..