Kalshi has been ordered by the Commodity Futures Trading Commission (CFTC) to continue operating after the exchange said state enforcement efforts had created a market emergency. The Aug. 11 directive underscored the clearest federal intervention so far in the dispute over whether states can apply gambling laws to event contracts on CFTC-regulated venues, and it cited risks to bitcoin-linked positions and other contracts if trading were forcibly unwound. The CFTC said forcing the closure of a bitcoin price position running through the end of 2026 could trigger traders to unwind bitcoin and other assets simultaneously, while exposing arbitrageurs holding offsetting trades to one-way risk. The order also referenced contracts tied to the federal funds rate, traffic through the Strait of Hormuz and the timing of a recession, framing continued operations as necessary to preserve orderly markets. The legal fight began with Attorney General Letitia James’ July 31 lawsuit, which says Kalshi offers sports prediction markets without a license from the New York State Gaming Commission. New York argues the company is running an unlicensed gambling business while avoiding taxes and consumer-protection obligations that apply to regulated casinos and sportsbooks. The state is seeking to force Kalshi to surrender gains tied to the alleged violations, provide restitution to consumers and pay penalties equal to three times those gains. A separate ruling in Connecticut added another layer to the federal-state clash. U.S. District Judge Vernon D. Oliver signed a decision on Aug. 7 and it was entered on Aug. 10 finding that Kalshi’s sports contracts are not swaps; the ruling also said that even if they were swaps, federal law would not preempt Connecticut gambling law. The broader unresolved issue remains whether federal derivatives oversight ultimately preempts state gambling laws for Kalshi’s fastest-growing markets.