Coinbase Challenges Three US States Over Prediction Markets

Coinbase Global Inc., the biggest crypto trading platform in the United States, has filed lawsuits against the U.S. states of Michigan, Illinois, and Connecticut, challenging their attempts to regulate prediction markets.

According to an update shared by Coinbase’s Chief Legal Officer Paul Grewal on X, the cryptocurrency exchange says these markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), not state gambling regulators.

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In its argument, Coinbase emphasized that Congress deliberately excluded only niche items like “onions” and “motion picture box office receipts” from commodity definitions, confirming sports events qualify, while distinguishing neutral prediction exchanges from profit-driven sportsbooks. 

Grewal also shared its Illinois filing for declaratory and injunctive relief. In it Coinbase is essentially asking a judge to rule that Illinois lacks the authority to regulate their platform under certain state laws, arguing that these crypto-derivative products are already governed by federal law.

The legal action comes as Coinbase broadens its offerings beyond cryptocurrency trading. On Wednesday, the company launched stock trading and Kalshi-powered prediction markets, allowing users to trade equities, exchange-traded funds (ETFs), and prediction contracts on one platform.

Federal vs State regulatory clash

Prediction markets allow users to trade contracts tied to the outcome of real-world events, such as elections, economic indicators, or sports results. 

Coinbase and Kalshi assert that such products are akin to “financial derivatives” and therefore are subject to regulation under the federal “Commodities Exchange Act.” On the other hand, the state maintains that “prediction markets are a form of gambling” and are therefore subject to state gambling regulations.

Courts have issued conflicting rulings, with some judges supporting federal oversight while others allow states to impose their own rules. This has already led some companies, including Kalshi and Crypto.com, to suspend or limit services in certain states. 

On December 10, Connecticut stepped up its crackdown on unlicensed online gambling, issuing cease-and-desist orders to Robinhood, Kalshi, and Crypto.com. State regulators said the platforms’ “sports event contracts” operate illegally without proper licenses, putting users’ money and personal information at risk.

Paul Grewal said the company is seeking court orders to prevent state interference, while regulators and casino groups argue that prediction markets could bypass consumer protections included in state gaming laws.

Competition and impact on users

The moves by Crypto.com and Gemini highlight rising competition among major cryptocurrency platforms for dominance in prediction markets. Crypto.com’s partnership with ERShares and Signal Markets focuses on building data-driven intelligence tools, while Gemini has quickly launched a prediction market platform across all 50 U.S. states.

Alongside Coinbase’s entry, these developments reflect a broader race among exchanges to expand beyond traditional crypto trading and gain early leadership in this rapidly growing market.

For the user, there is the uncertainty that comes with the expansion. This can result in a prediction market either being available or not, depending on the disputes related to regulation.

Depending on court decisions, users could face delays, restrictions in certain states, or sudden changes to platform features. Whether federal or state gambling rules apply could also affect limits on participation, safety measures, and fees. Until the rules are clear, users should expect uneven access and changing conditions as platforms adjust to the shifting regulatory landscape.