Coinbase has initiated legal action against the states of Michigan, Illinois, and Connecticut, marking a significant escalation in the ongoing debate over the regulation of prediction markets in the United States. This move underscores the industry’s struggle to clarify which regulatory body has the authority to oversee these markets.
The lawsuits are part of Coinbase’s efforts to challenge state-level authority, asserting that prediction markets should be regulated by the Commodity Futures Trading Commission (CFTC), not by individual state gaming regulators. This position stems from the company’s recent partnership with Kalshi, a CFTC-regulated prediction markets platform, in anticipation of launching event-based contract trading for U.S. customers in January 2026.
According to a Bloomberg report, Coinbase claims that the actions taken by the three states, whether regulatory threats or enforcement measures, lack the legal basis to impede prediction market operations. The exchange is pursuing court orders that would confirm the exclusive jurisdiction of the CFTC over these markets, asserting that they are wrongly categorized as gambling by state officials.
Coinbase’s Chief Legal Officer, Paul Grewal, emphasized the importance of clarifying this legal matter, describing it as settled law. He stated, “Prediction markets fall squarely under the jurisdiction of the CFTC, not any individual state gaming regulator.” Grewal further argued that state efforts to limit these markets not only hinder innovation but also conflict with federal law.
The contention arises primarily from differing views on whether prediction markets, especially those linked to sports events, should be classified as gambling. Some states maintain that these event-based contracts resemble unlicensed sports betting, thus putting them under state control. Conversely, Coinbase asserts that prediction markets function as neutral platforms that facilitate exchanges between buyers and sellers, rather than engaging in profit-driven betting practices.
In its filing in Illinois, Coinbase cautioned about the potential “immediate and irreparable” damage that might occur to its business if state interference persists. The company is seeking both declaratory and injunctive relief to prevent any enforcement actions while the courts evaluate the case.
The ongoing dispute became more complex following recent enforcement actions by Connecticut regulators, who issued cease-and-desist orders to Kalshi and other trading platforms, including Robinhood and Crypto.com. In response, Kalshi successfully sought temporary relief in court, halting the state’s enforcement actions while the legal proceedings continue.
As the market landscape evolves, the competition among crypto exchanges to capitalize on prediction markets is intensifying, with notable players like Gemini and PancakeSwap also joining the fray. Coinbase’s legal actions come amid these developments, highlighting the growing significance of prediction markets and the contentious regulatory environment surrounding them.
