Tennessee has placed a statewide ban on crypto ATMs, becoming the second state in the United States, after Indiana, to have outright banned crypto ATMs.

 

The ban on crypto ATMs in the state comes after Bill Lee, Tennessee’s governor, signed House Bill 2505 into law, following its unanimous approval by both the Tennessee House of Representatives and the Senate.

 

House Bill 2505, which has now been passed into the state’s legal code, prohibits the installation or operation of virtual currency kiosks, otherwise known as Bitcoin ATMs, in the state. Any violation of the law will be treated as a criminal offense classified as a Class A misdemeanor, with offenders facing up to one year in prison and a fine of $2,500.

 

Image credit: capitol.tn.gov

 

The law also treats business owners who allow these crypto ATMs to be hosted on their property as accomplices, making them liable under the same offense. Although the bill was signed into Tennessee’s legal code last Thursday, it will take effect on July 1.

 

Indiana First to Ban Crypto ATMs

Tennessee’s ban on crypto ATMs comes shortly after Indiana, which on March 9 signed House Enrolled Act 1116 (HEA 1116 into law, banning crypto ATMs in the state and becoming the first U.S. state to do so. The move was prompted by the high levels of fraud and widespread scams associated with crypto kiosks.According to FBI data, about $333 million was stolen through crypto kiosks in 2025 alone. 

 

Prior to the ban, Indiana had nearly 900 crypto ATMs in operation. However, all of these machines were effectively deactivated immediately after Indiana Governor Mike Braun signed House Enrolled Act 1116 into law.

 

Tennessee Takes a Strong Stance on Prediction Markets

Tennessee has, for some time now, taken strong action against prediction market platforms, targeting operators such as Kalshi and Polymarket. In January of this year, the Tennessee Sports Wagering Council (SWC) issued cease and desist orders against major platforms including Polymarket, Kalshi, and Crypto.com, demanding that they stop offering sports event contracts in the state.

 

Kalshi, however, sued the state in the U.S. District Court for the Middle District of Tennessee and won a preliminary injunction. The ruling allowed Kalshi to continue operating in the state while the case proceeds.

 

 

Polymarket has gone on the offensive.

 

The crypto-powered prediction market has filed a federal lawsuit against the state of Massachusetts, arguing that state regulators are overstepping their authority as they move to block sports-related prediction markets. The case puts Polymarket on a collision course with state gambling laws and could determine how far U.S. states can go in policing a fast-growing corner of crypto-finance.

 

At stake is a much bigger question than one company’s business model. The lawsuit tests whether prediction markets should be treated as federally regulated financial instruments or as another form of sports betting that states can license, restrict, or ban outright.

 

 

A Growing Clash Between States and Prediction Markets

Prediction markets allow users to trade on the probability of future events. Elections, economic data releases, interest rate decisions, and increasingly, sports outcomes. Traders buy and sell contracts that pay out based on what actually happens, with prices shifting in real time as sentiment changes.

 

Supporters argue these markets are closer to financial derivatives than gambling. Critics, especially state regulators, say sports-based contracts look and feel like wagers, regardless of how they are structured.

 

That tension has been simmering for years, but it boiled over recently when Massachusetts moved to shut down Kalshi’s sports-related markets. Kalshi operates as a federally regulated exchange under the Commodity Futures Trading Commission, yet a Massachusetts court sided with the state, granting regulators the power to block those contracts locally.

 

For Polymarket, that ruling was a warning shot.

 

 

Why Massachusetts Matters

Massachusetts has become ground zero for the state-level pushback. The state’s attorney general has argued that sports prediction contracts violate local gambling laws and should not be allowed without a state-issued license. Courts have so far been receptive to that argument, at least on an interim basis.

 

The implications extend far beyond one state. Regulators in Nevada and other jurisdictions have cited the Massachusetts case as justification for their own enforcement actions. If one state can successfully reclassify prediction markets as gambling, others are likely to follow.

 

Polymarket’s lawsuit is designed to stop that domino effect.

 

 

Polymarket’s Core Argument

Polymarket’s legal case is straightforward and ambitious.

 

The company argues that event-based contracts fall squarely under federal commodities law and that the CFTC has exclusive authority to regulate them. If that view holds, states would be barred from using gambling statutes to restrict or ban prediction markets, even when those markets involve sports.

 

In other words, Polymarket is asking the court to draw a hard line between federally regulated markets and state gambling oversight.

 

The lawsuit also reflects a strategic shift. Rather than waiting for a cease-and-desist or injunction, Polymarket is preemptively seeking judicial clarity before Massachusetts or other states can formally block its offerings.

 

 

Sports Markets Are the Flashpoint

Sports contracts sit at the center of the controversy for a reason. Unlike political or economic forecasts, sports betting is already heavily regulated at the state level, with billions in tax revenue flowing through licensed sportsbooks.

 

State officials argue that prediction markets offering contracts on game outcomes undermine that system and create an unlicensed alternative to traditional betting.

 

Prediction market operators counter that their products are fundamentally different. Prices are set by traders, not oddsmakers. Positions can be bought and sold before outcomes are known. Risk is distributed across a market, not absorbed by a house.

 

Courts have not yet settled which interpretation carries more weight.

 

 

The Broader Stakes for Crypto and Finance

The outcome of Polymarket’s lawsuit could shape the future of prediction markets in the U.S. If states prevail, platforms may be forced to geo-block large portions of the country or abandon sports contracts entirely. That would likely slow growth and limit mainstream adoption.

 

If Polymarket wins, it could establish a powerful precedent. Federal preemption would give prediction markets a clearer regulatory runway and could encourage more institutional participation in event-based trading.

 

There is also a competitive angle. Traditional sportsbooks operate under state licenses and strict compliance regimes. Prediction markets that fall outside those systems could disrupt the sports betting industry, which has expanded rapidly since the repeal of PASPA.

 

 

The Bottom Line

The case is still in its early stages, but the direction is clear. Prediction markets are no longer operating in a gray area that regulators are willing to ignore.

 

As states push back and platforms respond with federal lawsuits, the U.S. is heading toward a defining legal moment for event-based markets. Whether they end up regulated like derivatives or treated like gambling will determine not just where these platforms can operate, but what kind of products they can offer at all.

 

For now, Polymarket has drawn its line. The courts will decide how far states can go in crossing it.