CFTC gives the green light to Bitnomial: Prediction markets gain regulatory approval, breaking the ice in the crypto derivatives sector

The U.S. Commodity Futures Trading Commission (CFTC) has officially issued a “no-action” letter to the cryptocurrency exchange Bitnomial, allowing it to launch “event contracts” and prediction markets based on digital assets, economic indicators, and other underlying assets.

This decision not only clears a key regulatory hurdle for Bitnomial but also marks a more open attitude from U.S. derivatives regulators toward innovative financial products native to the crypto space. As the 2024 election cycle drives a surge in prediction market activity—from Polymarket to Kalshi—on-chain prediction platforms are gaining unprecedented attention from mainstream culture and capital. This regulatory breakthrough could open a new chapter for the integration of traditional finance and decentralized finance in the complex derivatives field.

Green Light Confirmed: How the CFTC is Paving the Way for Bitnomial

Early 2025, a significant milestone was added to the regulatory landscape of the U.S. derivatives market. The CFTC’s Division of Market Oversight and Division of Clearing and Risk jointly issued a no-action letter to Bitnomial Exchange, LLC, and its clearing affiliate, Bitnomial Clearinghouse, LLC. Essentially, this document sends a clear signal: as long as operations are conducted within a specific framework, activities that might touch regulatory gray areas will not face enforcement recommendations for prosecution. For Bitnomial, this “green light” means it can legally launch and operate a new type of derivative—event contracts.

What are event contracts? In short, they are financial instruments that allow traders to bet on the outcome of specific events (e.g., “Will Bitcoin break $100,000 before the end of the month?” or “Will the non-farm payrolls data for a certain month exceed expectations?”). In its application to the CFTC, Bitnomial explicitly expressed its intention to list “binary and bounded swap contracts, with underlying assets involving digital assets, economic indicators, and other financial outcomes,” emphasizing that all contracts will be “fully collateralized.” The approval also came with conditions, including requirements for Bitnomial to publish sales data and meet specific recordkeeping and reporting obligations. These measures reflect a cautious balance by the CFTC between encouraging innovation, maintaining market integrity, and protecting consumers.

This decision is not isolated. Over the past month, during the tenure of Acting Chair Caroline Pham, the agency has granted green lights to several companies aiming to enter the prediction market space. For example, in December 2024, the CFTC approved Gemini Titan to begin offering classic binary event contracts, leaving room for future expansion into crypto futures, options, and perpetual contracts. Simultaneously, platforms like Polymarket US and MIAX Derivatives Exchange LLC received similar no-action letters. Bitnomial itself earlier became the first exchange to list a regulated spot crypto product (such as a Bitcoin spot ETF derivative) in December 2024. These actions outline a clear regulatory path: the CFTC is cautiously allowing regulated entities to explore the emerging prediction market sector.

Protocol Features Analysis: Dual Locks of Safety and Transparency

Receiving a no-action letter is not a permanent guarantee; rather, it functions more like a “safety operating license” with strict terms. The conditions set by the CFTC for Bitnomial focus on risk isolation and information transparency, aiming to build a robust prediction market framework. These requirements not only constrain Bitnomial but also set regulatory expectations for potential future participants in the industry.

Key Conditions for the Bitnomial Protocol

• Full Collateralization (1:1 backing): All open positions must be fully covered by equivalent collateral, prohibiting leverage. This requirement eliminates counterparty risk and ensures that any outcome can be fully paid.
• Data Transparency: Clear and detailed market data must be provided on the official website, including precise timestamps and sales data.
• Regulatory Reporting: When requested by the CFTC, significant details must be submitted.
• Recordkeeping: Strict record retention rules must be followed to facilitate audits and supervision.

Among these, “full collateralization” is the most critical firewall. Insiders reveal that financial regulators explicitly require Bitnomial to avoid leverage and implement 1:1 asset backing. This mechanism is vital for prediction markets, which can involve large volumes of contracts exchanged in a single day on fast-paced platforms. It ensures the platform maintains sufficient liquidity under any market volatility, preventing chain-reaction defaults caused by insufficient collateral and fundamentally safeguarding the stability of the company and the broader market. This contrasts sharply with some decentralized prediction markets that rely on algorithms and community governance to manage risk, representing a “safety-first” approach in traditional regulatory thinking.

Additionally, data transparency and reporting obligations serve as another set of “locks.” Bitnomial must provide users with clear, detailed information on its website, such as exact timestamps and sales data for contracts. When federal agencies request, Bitnomial is obliged to submit significant details. These requirements aim to enhance market transparency, prevent manipulation and insider trading, and enable effective oversight by regulators. In a context where prediction markets have repeatedly faced controversy over “insider information”—for example, recent reports of accounts betting on the resignation of Venezuelan President Maduro and netting $400,000—such transparency measures are especially necessary. They serve to balance market innovation with regulatory oversight.

Industry Wave Rising: Why Prediction Markets Are the New Favorite?

Bitnomial’s approval is not only a milestone for itself but also a strong signal that the prediction market sector is entering mainstream consciousness. Over the past year, especially during the 2024 presidential election cycle, prediction markets have experienced explosive growth. Platforms like Polymarket and Kalshi allow users to place small bets with cryptocurrencies or fiat on the outcomes of specific events—such as state primaries or the presidential election—combining financial speculation with political participation, attracting large user bases.

Analysts note that interest in prediction markets among Americans surged during the 2024 election. Supporters believe that the collective wisdom gathered through “real money” betting often provides more accurate reflections of the actual probabilities of events than traditional polls. This appeal has even permeated popular culture. In September 2025, the long-running satirical cartoon “South Park” featured a storyline directly showcasing Kalshi and Polymarket, bringing these leading prediction platforms to a phenomenon-level exposure and further boosting their recognition among the general public.

Capital responses have been the most direct and powerful. Reports indicate that in the month following the “South Park” episode, Intercontinental Exchange (ICE), a U.S.-based multinational financial services company listed on the New York Stock Exchange, invested up to $2 billion in Polymarket, pushing its valuation to $9 billion. Meanwhile, a major centralized exchange (CEX) announced in December 2025 plans to acquire a fintech startup developing the next-generation on-chain prediction market platform, The Clearing Company, as part of its strategic exploration in this field. The deal is expected to close by January 2026, just before the U.S. midterm elections. Analysts generally predict that trading activity on prediction markets will surge with the election season. Driven by culture, capital, and election cycles, this wave is pushing prediction markets from fringe experiments into the spotlight of financial innovation.

Future Impact and Challenges: Imagining the Compliance of Crypto Derivatives

CFTC’s approval of Bitnomial’s activities has far-reaching implications beyond a single company or product. It signals that the U.S. financial regulatory system may be opening a conditional pathway for a new wave of blockchain- and crypto-inspired financial options. Under the leadership of Republican Michael Selig, who took office as CFTC Chair at the end of December 2024 and is the sole commissioner, this trend is particularly noteworthy. Selig has publicly discussed the need for clearer rules for cryptocurrencies and the importance of balancing consumer protection with allowing developers to innovate. Bitnomial’s case may represent an early practical example of this balancing act.

This development opens up new possibilities for the compliance of crypto derivatives markets. Traditionally, complex crypto derivatives—such as options and structured products—are traded outside regulated frameworks or on offshore platforms. Bitnomial’s model offers a potential approach: by employing structures like “full collateralization” and “event-driven” designs, it can bundle native variables—such as crypto asset price volatility, network upgrade outcomes, or meme coin popularity—into standardized contracts that meet traditional regulatory prudence. This could attract institutional capital seeking compliant entry points and potentially bring more liquidity from the traditional financial world into the crypto ecosystem.

However, challenges coexist with opportunities. The primary concern is how to address allegations of “insider trading.” Prediction markets, especially those involving political or corporate major events, always walk a fine line between utilizing non-public information and legal/ethical boundaries. Transparency and reporting requirements by the CFTC serve as safeguards, but whether they can fully eliminate such risks remains uncertain. Second, the “gambling” aspect of prediction markets remains sensitive under U.S. state laws; federal derivatives licenses do not fully resolve state-level legal risks. Lastly, competition from decentralized prediction markets (e.g., Augur), which have inherent advantages in permissionless and censorship-resistant features, cannot be ignored. The compliant path represented by Bitnomial versus the fully decentralized route will involve long-term competition over user experience, costs, and trust models.

Event Contracts: Principles and Application Scenarios

To fully grasp the significance of Bitnomial’s approval, it’s essential to clarify the core product—“event contracts.” While not entirely new, their combination with cryptocurrency and blockchain data opens unprecedented application scenarios.

Event contracts are derivatives whose payout structure depends entirely on whether a specific future event occurs (binary outcome) or falls within a predefined range (bounded outcome). For example, a typical binary event contract might be: “Will Ethereum’s price be above $5,000 by June 30, 2025, UTC 23:59?” If “yes,” the buyer receives a fixed payout (e.g., $1); if “no,” the seller receives the payout. The trading price (e.g., $0.65) itself reflects the market’s implied probability of the event (65%).

In the crypto space, the application of event contracts is highly imaginative:

1. Protocol Governance & Upgrades: Betting on “Will Ethereum undergo a hard fork before July?” or “Will a DAO proposal pass with over 60% approval?” provides powerful market prediction tools for developers and communities.
2. On-Chain Indicators: Contracts could be linked to “Will Uniswap V3’s average daily trading volume next month exceed $10 billion?” or “Will the floor price of a certain NFT collection be halved by the end of the quarter?”
3. Macro and Crypto Integration: “Will the Federal Reserve raise, cut, or hold interest rates at the next meeting?” combined with crypto market reactions like “Will Bitcoin rise or fall within one hour after the announcement?” creates complex hedging or speculative strategies.

Introducing these contracts into regulated clearinghouse frameworks means these price discovery functions will operate within a legally enforceable and risk-managed environment, which is crucial for attracting large traders and institutional participants.

The Regulatory Journey of Prediction Markets

The path to regulation for prediction markets has been winding, fraught with probing, clashes, and compromises. Bitnomial’s approval today is the latest milestone on this long road.

In the early stages (early 2000s), academic prediction markets like Iowa Electronic Markets operated under limited “research tool” licenses, explicitly prohibiting profit-making and large-scale public participation. In the 2010s, with the rise of Bitcoin and blockchain tech, decentralized prediction markets like Augur emerged, pushing the issue into the realm of “code is law,” making regulation difficult to enforce.

A turning point occurred in the 2020s. Crypto-based prediction platforms like Polymarket rapidly grew, especially with political betting, and by early 2022, the CFTC fined and shut down parts of Polymarket for operating illegal binary options and unregistered markets. This enforcement prompted the industry to seek compliance pathways. Polymarket then actively engaged with regulators, spinning off its U.S. operations (Polymarket US) and seeking approval. Kalshi, from the outset, embraced regulation, positioning itself as an “event contract exchange” and applying to the CFTC for legal registration.

Bitnomial’s approach was different. It was already a CFTC-registered designated contract market (DCM) and derivatives clearing organization (DCO). Its recent “no-action” letter to expand business on top of existing licenses is a form of incremental compliant innovation. This pathway could serve as a template for other licensed traditional or crypto financial institutions.

From strict enforcement to conditional approval, the evolution of the CFTC’s attitude reflects pressures from technological innovation, capital market pursuits, and regulatory wisdom in “balancing openness and control.” The regulatory landscape is still evolving, but the direction is clear: prediction markets are being integrated into the modern financial regulatory framework, with blockchain and crypto technology as key drivers of this transformation.