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- Coinbase sues three U.S. states over authority to regulate prediction markets
- Exchange argues prediction contracts fall under CFTC, not state gambling laws
- Court rulings may shape future access to prediction markets nationwide
Coinbase Global Inc. has filed lawsuits against Michigan, Illinois, and Connecticut to challenge state efforts to regulate prediction markets. The U.S.-based crypto exchange says federal law governs these products. It argues that state gambling authorities lack jurisdiction. The dispute highlights a widening regulatory conflict as Coinbase expands beyond digital asset trading into broader financial services.
The lawsuits assert that prediction markets fall under the exclusive oversight of the Commodity Futures Trading Commission. Coinbase says these contracts qualify as commodities under the Commodity Exchange Act. According to the company, Congress assigned regulation of such products to federal agencies. State-level enforcement, it argues, conflicts with that framework.
Chief Legal Officer Paul Grewal posted information regarding the filings in a public update. He mentioned that Coinbase is requesting the courts to grant declaratory and injunctive relief. The exchange desires judges to prevent states from enforcing gambling laws on its platform. Coinbase argues that these products are already being covered by federal law.
Coinbase Cites Congress to Support Prediction Market Legality
Coinbase references Congress’s definition of commodities in its reports. Only a few things, like onions and movie box office receipts, were omitted by the lawmakers. The company cites this as an indication that sports and real-life events are not out of scope. Coinbase emphasizes as well that prediction markets are unlike conventional sportsbooks.
The exchange describes its platform as a neutral trading venue. Users trade contracts based on outcomes rather than betting against the house. Coinbase says it does not profit from customer losses. It argues this structure aligns prediction markets with financial derivatives.
Also Read: Coinbase to Unveil Prediction Markets and Tokenized Equities at Dec. 17 Event
One of the lawsuits, filed in Illinois, asks the court to declare that the state lacks authority to regulate Coinbase’s prediction markets. The filing also seeks an injunction to stop enforcement actions. Similar legal claims appear in the cases against Michigan and Connecticut. Coinbase says state laws cannot override federal commodities regulation.
The legal issue arises when Coinbase is broadening its product lines. This week, the company initiated stock trading and prediction markets, which are Kalshi-powered. It is now possible to trade equities, exchange-traded funds, and event-based contracts on the same platform. The relocation indicates the interest of the traditional financial platforms in Coinbase.
Regulatory Confusion Limits Access to Prediction Markets
Prediction markets facilitate trading an event that takes place in reality. These cover elections, economic data announcements, and sporting outcomes. Coinbase and Kalshi suggest that the contracts act as regulated derivatives. State regulators respond by arguing that sports-related contracts are similar to gambling.
The courts have made mixed decisions regarding the matter. Federal oversight has been preferred by some judges. Some judges have permitted states to impose gambling rules. This legal unpredictability has already affected access to the market.
Some other platforms have retaliated by restricting services. Kalshi and Crypto.com are limited in several states. There has been a rise in regulatory pressure within the sector. Firms now have to deal with inequalities in rules as defined by jurisdictions.
Connecticut intensified the restrictions on December 10. Regulators at the state level issued cease-and-desist orders on Robinhood, Kalshi, and Crypto.com. The state officials alleged that the sites were selling unlicensed sports event contracts. They cautioned about threats to user funds and individual data.
According to Coinbase, government intervention interferes with innovation and clarity of compliance. According to regulators and casino groups, prediction markets circumvent consumer safeguards. Users can expect varying access and further regulatory tension until a court resolves the dispute.
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