Coinbase Takes States to Court over Prediction Market Crackdowns

Coinbase has taken a proactive stance in the escalating confrontation over who should oversee prediction markets in the United States. The company has taken legal action against state regulators in Connecticut, Illinois, and Michigan. The cryptocurrency exchange is asking the court to prohibit those states from policing products that Coinbase says fall squarely under federal oversight, not state gambling law.

Coinbase Is Set on Prediction Market Expansion

The dispute centers on Coinbase’s planned entry into prediction markets, a rapidly growing financial trading vertical that allows traders to place bets on the outcomes of world events, including elections and sports. The crypto company claims that the contracts are commodity derivatives regulated exclusively by the Commodity Futures Trading Commission (CFTC), placing them outside the jurisdiction of state gaming agencies.

Prediction markets are fundamentally different from sportsbooks. They are neutral exchanges, indifferent to price, that match buyers and sellers.

Paul Grewal, Coinbase chief legal officer 

In a recent statement for Bloomberg, the company stated that the three states have already taken, or threatened to take, enforcement action against other prediction market operators, posing a direct threat to Coinbase’s planned expansion. The lawsuit seeks to secure guarantees that the states cannot interfere with the CFTC’s jurisdiction.

These states have taken or threatened action against other prediction market players in an attempt to gain jurisdiction over something they have no legal right to regulate.

Coinbase statement

Coinbase recently revealed it would include prediction markets in its product range as part of a broader effort to diversify its offerings. That prospect has alarmed state regulators and casino interests, who argue that prediction markets closely resemble sports betting and should adhere to state gambling laws. States have drawn attention to consumer polls, which suggest that users view prediction contracts as wagers rather than financial instruments.

These Products Remain Highly Controversial

With more than 100 million registered users worldwide and 11 million monthly active customers, Coinbase enters the prediction market with a user base that rivals most existing platforms. If even a fraction of these customers show interest in this new vertical, Coinbase could quickly rise to challenge established operators such as Kalshi.

The regulatory landscape is already quite complex. Kalshi has been battling regulators in multiple states and recently suffered a setback in Nevada, where a federal judge declined to shield it from enforcement. Robinhood and Crypto.com have also faced similar scrutiny, just as Coinbase plans its grand entry into the prediction space.

Federal regulation supporters argue that allowing each state to impose its own rules would fracture the market and effectively ban prediction trading in large parts of the country. Critics counter that it undermines decades of state control over gambling and opens the door to lightly regulated betting products. With legal challenges mounting, experts anticipate the issue will reach the US Supreme Court as early as next year.