Is Kalshi Still Legal in New York? What the NYAG Lawsuit Means for Your Account, Your Open Positions, and Your Money

The New York Attorney General's lawsuit against prediction market outfit Kalshi asks the court to shut the platform down. But this isn't an immediate ban on prediction markets. Rather, it's a contested piece of litigation that has to be heard in court. And though the outcome is far from clear, it reveals an interesting tension: gambling laws on the one hand, and federal jurisdiction on the other. 

And interestingly, if the CFTC is actively stepping in to defend Kalshi against the state attorneys general, it creates a unique period of limbo for prediction market users, making their funds safer than past state-imposed bans, yet a legally uncertain territory nonetheless.

What New York Actually Alleged

Let's start with the specifics of New York state's argument, which makes sense: In the state's eyes, the contracts Kalshi sells its users to bet on future events are quintessentially gambling, and thus fall under the state's specific laws against gambling without oversight or licensing. 

On top of that, it's further alleged that Kalshi has violated the state's age requirements, effectively allowing users under the age of 21 to bet on certain events. Kalshi has countered this, of course, framing the whole lawsuit as political theater. The dispute really comes down to whether these contracts involving sports, elections, entertainment, and anything else under the sun are gambling, or what they're not.

Why New York Is Different From Minnesota, Nevada, Massachusetts, and Michigan

So in a way, the New York case is not that different from the ones in states like Minnesota, Michigan, and Nevada, where prediction markets got shut down or forced to withdraw. On the surface, they look the same. But look closer, and there's one crucial difference: in past cases like these, the state authorities moved on their own, and the federal government didn't step in. 

In this case, though, the CFTC filed an emergency motion to stop the New York Attorney General from shutting Kalshi down immediately. It's essentially moving to preempt state action, arguing that because prediction markets fall under CFTC jurisdiction, state authorities don't have the right to act unilaterally.

• So, as interesting as it is to see so many very different rulings coming out of different courts on different aspects of prediction markets, this case really puts the federal vs. state in stark relief.

What Happens to Your Open Positions—and the Restitution Claim Explained

Now then, the implications for prediction market users. The first thing to note is that Judge Torres' refusal to accept an injunction isn't the same as saying Kalshi can't go on operating under the same conditions. It's just a way of saying the final hearing hasn't happened yet. It doesn't mean the same thing as a court ruling outright against Kalshi. 

And if anything, the NYAG's request for restitution may actually be the one to cause them trouble. On its face, it looks harmless enough: people put money into Kalshi's books, the request is to return that money to them, and if it's enforced, Kalshi would have to shut down, as they wouldn't be able to operate with the cash they need to run the site. But the way it's worded reveals that it's not one thing. The NYAG is not asking the court to shut Kalshi down. 

They're asking the court to send all the money they've collected to those who traded on them, and to order that company to "restitution of any amounts obtained therefrom or as otherwise may be just and proper." So it all comes down to the difference between telling someone to shut down and telling them to liquidate their users and send everyone their money.

It's Not Just Kalshi—Coinbase and Gemini Were Sued Too

To some extent, what the suit may come to also affects other market participants in various ways right now. For the time being, it's better to think of it in the context of the broader action against companies like Coinbase and Gemini in the NYAG's case for allegedly practicing unlicensed banking operations, which has also had ripple effects not just within crypto, but off the blockchains, since firms like Bitstamp had to halt their US operations entirely after a brief period of unrest sparked by the same regulatory crackdown. 

In those cases, however, specific company operations were under scrutiny. In this case, the legal theories being tested here are general ones and apply to the prediction-market sector as a whole. 

• If New York succeeds in its approach to this matter, that could mean not only Kalshi's end, but also that of competitors like Polymarket, and if the CFTC or the Court of Appeals manages to win the case and establish federal protection for prediction market operators in New York, then in all likelihood that'll be protection that extends across the whole industry in the state.

What You Should Actually Do Right Now

So while none of what we've seen so far suggests any immediate threat to prediction market users, that doesn't mean there aren't steps you should be taking now to prepare for different eventualities. And while the best response to these kinds of dramas is to avoid letting the headlines influence you more than the facts on the ground, it's important to have one's ducks in order in the event that the legal filings escalate. 

For most users, the first thing you should be doing now is maintaining careful, accurate records of all your trades, statements, and other account activity. Keep copies of screenshots showing you've had open positions and what you've traded, in case it comes to light that you've had to liquidate those at a later date. What's important is that if you do end up having to liquidate those positions, you can substantiate that the positions existed at the time you liquidated them. 

This is also important if you have tax obligations tied to the positions in question, so keeping clear records is also a good general practice, regardless of the current situation in New York. For the moment, however, there's little reason to change the way you trade. Be mindful that the situation remains a work-in-progress, and if you're inclined to open new positions, be sure to avoid new, large ones while things are still playing out.

The Court Timeline — What Happens Next

To recap, Judge Torres has denied Kalshi the injunction at this point. And the Chicago federal appeals court affirmed the CFTC's authority over prediction markets in its recent ruling. That only leaves a single question mark now, which is what will happen with the CFTC's motion for federal preemption over prediction markets in New York. Whether or not that concludes in the agency's favor will be the thing to watch for in the upcoming months. 

• In the meantime, with the CFTC hearing from the parties on its motion in the context of the ongoing litigation between the New York AG and Kalshi, if that matter begins to wind down, and Kalshi receives a notice from the platform itself about the process, then the next stop will be whatever the new legal standard looks like in New York from there.