Coinbase Faces Legal Challenges Over Prediction Markets in Three States

Coinbase is suing the states of Connecticut, Illinois, and Michigan in a bid to secure federal protection for its proposed prediction markets. The exchange argues that these markets should fall under the jurisdiction of the Commodity Futures Trading Commission, or CFTC, rather than being subject to individual state gambling laws.

Chief Legal Officer Paul Grewal emphasized that the company seeks to prevent a scenario where the most restrictive state laws dictate national standards, fundamentally challenging the principles of federalism.

Coinbase distinguishes its prediction markets from traditional sportsbooks, stating that they serve as neutral platforms that match buyers and sellers, rather than profiting from customer losses. This legal battle comes in the wake of similar challenges faced by Kalshi, a company that has also been embroiled in disputes regarding the classification of prediction markets as regulated financial instruments versus gambling products.

The outcomes of these cases could have significant implications for the future of prediction markets in the U.S., determining whether they will be treated under federal regulations or state gambling laws.

Meanwhile, federal courts have granted temporary protections to Kalshi in some jurisdictions while the legal questions remain unresolved.