US regulators are increasing their scrutiny of the cryptocurrency industry, focusing on both financial institutions' involvement and emerging derivatives markets. The Commodity Futures Trading Commission (CFTC) has requested explanations from Crypto.com and Kalshi regarding their Super Bowl event contracts, raising questions about compliance with derivatives regulations. At the same time, banks remain hesitant to deepen their engagement with digital assets due to concerns over anti-money laundering (AML) risks, according to a recent TD Cowen report. As lawmakers prepare to hold hearings on crypto-related banking policies, the debate over regulatory clarity and financial institutions' role in the sector continues to evolve.
CFTC Probes Crypto.com and Kalshi Over Super Bowl Event Contracts Amid Regulatory Scrutiny
The US Commodity Futures Trading Commission (CFTC) has intensified its scrutiny of Crypto.com and predictions market Kalshi, seeking clarification on how their Super Bowl event contracts comply with derivatives regulations. The move signals the agency’s heightened focus on emerging financial products in the digital asset space.
A CFTC spokesperson reportedly told Bloomberg on Feb. 3 that the commission is “continuing to review the contracts in accordance with our regulations.” This follows a Jan. 14 report stating that the CFTC was contemplating an investigation into the legality of Crypto.com’s Super Bowl futures contracts.
Crypto.com, which operates a US-based derivatives exchange, informed the CFTC on Dec. 19 that it intended to begin trading Super Bowl event contracts on Dec. 23. However, with the Christmas holidays and a potential government shutdown looming, Bloomberg reported that the CFTC did not have sufficient time to review the products before they went live.
Now led by Commissioner Caroline Pham, the CFTC cannot immediately halt the trading of Crypto.com and Kalshi’s Super Bowl contracts, as the regulatory process requires a 90-day review period. Given that Super Bowl LVIII is set to take place on Feb. 9, the contracts will be settled before any enforcement action can be taken. However, the CFTC retains the authority to prohibit such contracts post-event if they are found to be in violation of derivatives laws.
This latest regulatory development follows a Jan. 27 statement from the CFTC’s new leadership, emphasizing the commission’s commitment to closely examining emerging issues in the derivatives market. The regulatory body has the authority to request additional information from firms that “self-certify” their financial products. In doing so, companies must demonstrate that their offerings are not susceptible to market manipulation and comply with all relevant derivatives regulations.
Kalshi’s Market Sees Millions in Trading Volume
Kalshi launched its “Kansas City vs. Philadelphia” Super Bowl prediction market on Jan. 24, generating over $2.4 million in trading volume. The platform has also allowed users to bet on which companies will air advertisements during the Super Bowl, an offering that has attracted nearly $1.5 million in trading volume.
While traditional betting markets remain heavily regulated in the US, prediction markets have gained traction as an alternative way to speculate on real-world events. The emergence of blockchain-powered platforms such as Polymarket— which saw over $3.6 billion in bets placed on the US election last November— demonstrates the growing demand for decentralized and on-chain betting systems.
Meanwhile, Robinhood Derivatives has also entered the prediction market space. On Feb. 3, the company announced a partnership with Kalshi, allowing select traders to place bets on the outcome of the Super Bowl.
The CFTC’s increased scrutiny of event-driven derivatives aligns with its broader push to establish clearer regulatory guardrails in the crypto and prediction markets. Critics argue that event-based futures contracts may resemble gambling rather than legitimate financial instruments. However, proponents contend that such markets serve a critical role in price discovery and risk hedging.
The regulatory uncertainty surrounding these markets reflects a wider debate over the role of blockchain-based prediction platforms in traditional finance. While some regulators advocate for tighter restrictions, others see potential in integrating decentralized prediction markets within the broader financial ecosystem.
Despite the uncertainty, Crypto.com and Kalshi have yet to respond to the CFTC’s request for further information. The outcome of this inquiry could set a precedent for how event-driven contracts are treated under US derivatives law, with implications for both centralized and decentralized prediction markets in the future.
As the Super Bowl approaches, all eyes will be on how these contracts unfold—and whether they ultimately pass the regulatory test set forth by the CFTC.
Banks to Limit Crypto Exposure Amidst Ongoing AML Concerns, Says TD Cowen
In other news, the banking sector’s hesitancy to engage with the cryptocurrency industry is unlikely to subside as long as anti-money laundering (AML) concerns remain unresolved, according to a report from investment bank TD Cowen. The firm’s Washington Research Group, led by Jaret Seiberg, emphasized in a note on Monday that while increased regulatory clarity might encourage banks to serve as crypto custodians, the risk of liability associated with money laundering, terrorist financing, and sanctions evasion remains a major deterrent.
This week, US lawmakers will hold two critical hearings on the issue of “debanking,” with the Senate Banking Committee convening on Wednesday and the House Financial Services Committee meeting on Thursday. Discussions are expected to touch upon how regulators, including the Office of the Comptroller of the Currency (OCC), have approached crypto-related banking activities.
The issue of debanking—where financial institutions restrict or deny services to crypto-related businesses—has been a point of contention in Washington. In the wake of FTX’s collapse in late 2022, regulatory bodies such as the Federal Reserve and the OCC issued stern warnings about the risks associated with crypto assets. These advisories contributed to what industry participants see as an informal but systemic effort to restrict crypto companies’ access to banking services.
Despite growing institutional interest in crypto, TD Cowen’s report asserts that major banks are unlikely to expand their crypto operations without substantial legal reforms. Seiberg argues that the risks of non-compliance with AML and Bank Secrecy Act (BSA) regulations far outweigh the benefits for financial institutions.
“Our view is that banks will limit crypto exposure as long as there is AML/BSA risk associated with holding and trading crypto assets,” Seiberg noted. “The penalties for AML/BSA violations are too high to make it worthwhile for banks to broadly service the crypto sector without greater clarity.”
This sentiment extends to stablecoins as well. Seiberg noted that banks could hesitate to issue stablecoins due to concerns over their potential misuse. Institutions fear they could be held responsible if a stablecoin they issue is later linked to illicit financial activity.
While the crypto industry has advocated for regulatory reform to address concerns around debanking, TD Cowen’s report suggests that simply having new regulators in place will not be enough to resolve the issue.
“It is why we believe the controversy over debanking of crypto entities is unlikely to end just because there are new regulators with new policies,” Seiberg wrote. “It will take a broad overhaul of AML/BSA rules for banks to be comfortable that tokens were not at some point tied to illicit activity.”
Such an overhaul, however, would require legislative action from Congress—something that has proven difficult given the divided political landscape and varying views on digital asset regulation.
The crypto sector has long accused regulators of deliberately restricting access to banking services. In 2023, Nic Carter, co-founder of Castle Island Ventures, coined the term “Operation Choke Point 2.0” to describe what he saw as a coordinated effort by regulatory agencies to cut off crypto firms from financial services. The phrase alludes to the original “Operation Choke Point,” a controversial Obama-era initiative that targeted banking services for industries deemed high-risk for fraud and money laundering.
Coinbase has also taken legal action in response to what it perceives as unfair treatment. Last year, the exchange filed a lawsuit against the Federal Deposit Insurance Corporation (FDIC), alleging that the regulator—through consultant firm History Associates—had intentionally sought to isolate the crypto industry from the banking sector. The FDIC has denied these allegations, maintaining that banks are free to serve crypto firms as long as they comply with existing regulations.
Big Banks Hesitate on Crypto Engagement
Even the largest financial institutions remain cautious about their involvement with crypto. JPMorgan Chase CEO Jamie Dimon recently commented that while the bank does work with some crypto firms, the risks remain substantial. He noted that a single misstep could result in millions of dollars in fines.
Federal Reserve Chair Jerome Powell has acknowledged these concerns, stating last week that banks can serve crypto customers as long as they can adequately manage the associated risks. However, the lack of clear guidelines on what constitutes adequate risk management has left many financial institutions in a difficult position.
As the debate over crypto debanking continues, it remains unclear whether regulatory bodies will take steps to ease banks’ concerns or if financial institutions will continue to keep crypto firms at arm’s length.
While some lawmakers have advocated for regulatory clarity to foster innovation in the crypto space, others argue that strict oversight is necessary to prevent financial crimes. The upcoming congressional hearings on debanking may shed further light on how policymakers intend to navigate this complex issue.
For now, banks remain hesitant to deepen their involvement in the crypto sector, waiting for a clearer legal framework before making any significant commitments. As Seiberg and TD Cowen’s report suggests, the industry will likely need congressional action to break through the barriers that currently limit its access to traditional financial services.
