Crypto Crackdown Deepens: Minnesota Bans ATMs, New York Sues Kalshi

Crypto Crackdown Deepens: Minnesota Bans ATMs, New York Sues Kalshi

U.S. crypto regulation took two major steps forward on August 1, 2026, as Minnesota became the first state in the country to shut down cryptocurrency ATMs statewide, and New York escalated its legal war on prediction markets with a fresh lawsuit against Kalshi. Together, the two developments show state regulators moving more aggressively than ever to draw lines around how crypto products can operate on American soil.

Minnesota Pulls the Plug on Crypto Kiosks

Minnesota's statewide ban on crypto ATMs took legal effect today, making it illegal for any person or company to install, operate or maintain a virtual currency kiosk anywhere in the state. Signed earlier this year by Governor Tim Walz, the law gives operators until December 31, 2026 to physically remove the roughly 350 licensed machines that had been running across the state, and requires them to pay out, at fair market value, any funds still owed to customers.

Regulators say the ban follows a wave of scams channeled through these machines. The Minnesota Department of Commerce logged 134 complaints tied to crypto kiosk fraud between 2023 and 2025, with losses approaching $1 million, much of it from elderly residents pressured over the phone into rushing to a nearby kiosk and converting cash into crypto that is then swept overseas within minutes, leaving victims with almost no way to recover their money. The bill, SF 3868, passed with 13 bipartisan sponsors and builds on a 2024 law that had only capped kiosk deposits at $2,000, a measure regulators concluded wasn't enough. In a notable counterpoint, Minnesota-chartered banks and credit unions are simultaneously gaining the right, as of the same date, to offer regulated crypto custody services, signaling the state is trying to separate legitimate digital asset infrastructure from the kiosk model it blames for the fraud.

New York Escalates Its Fight Against Kalshi

On the other side of the country, New York Attorney General Letitia James filed suit against prediction market platform Kalshi on July 31, seeking to have it declared an illegal, unlicensed gambling operation and barred from the state entirely. The lawsuit, filed in Manhattan state court, argues that Kalshi's event contracts, covering everything from sports outcomes to elections, meet New York's legal definition of gambling because they depend on chance rather than skill, and that the company never registered with the state Gaming Commission or paid the taxes that licensing would require. The state also alleges Kalshi has allowed users younger than the state's legal gambling age of 21 to trade on the platform.

New York is asking a court to shut Kalshi out of the state, order full restitution to customers, and impose penalties — including $100,000 per unauthorized wagering offer and triple the company's alleged illicit gains — that could total an estimated $36 billion. Kalshi, for its part, argues it is a federally licensed derivatives exchange under the Commodity Futures Trading Commission's exclusive jurisdiction, not a state-regulated gambling operator, a position the CFTC itself has backed by seeking to block New York's suit. Federal judges have already twice sided with New York on related procedural questions, rejecting Kalshi's requests for an injunction on July 8 and again on July 27. New York's case joins similar disputes already underway in Rhode Island, New Jersey, Nevada and Maryland, and follows the state's own April lawsuit against Coinbase and Gemini on comparable gambling allegations.

A Common Thread: States Reasserting Control

Though the two cases involve very different corners of the crypto industry, both reflect the same underlying dynamic: state regulators are no longer waiting on federal clarity and are instead using their own consumer protection and gambling laws to rein in products they see as high-risk. For Minnesota, the target was physical infrastructure exploited by scammers; for New York, it's a federally licensed trading platform the state insists is gambling by another name. How courts rule on the Kalshi case in particular could set a precedent that shapes whether prediction markets — and by extension a wider range of crypto-adjacent products — ultimately answer to state law or to federal regulators alone.