Who regulates prediction markets? Coinbase forces a US legal test

• Coinbase argues the Commodity Exchange Act gives the CFTC exclusive authority over event contracts.
• Earlier cases involving Kalshi show courts have yet to settle the issue decisively.
• The rulings could shape how prediction markets and related financial products develop nationwide.

Coinbase has taken its dispute with US regulators to court as it expands into prediction markets, filing lawsuits against authorities in Connecticut, Illinois, and Michigan.

The legal challenge centres on a fundamental question facing financial markets in the United States: whether prediction markets should be regulated at the federal level as financial derivatives or treated by states as gambling products.

Coinbase argues that the answer has already been set out in federal law.

State regulators disagree, setting up a clash that could redefine oversight for event-based markets tied to finance, politics, and real-world outcomes.

A jurisdictional battle takes shape

The exchange’s case is built around the Commodity Exchange Act, which grants the Commodity Futures Trading Commission authority over derivatives, including event contracts.

Coinbase maintains that prediction markets listed on CFTC-supervised platforms fall squarely within this framework.

From the company’s perspective, state efforts to apply local gambling laws amount to regulatory overreach.

Paul Grewal, Coinbase’s Chief Legal Officer, has positioned the lawsuits as a response to what the company sees as a direct conflict between federal authority and state enforcement.

Coinbase argues that allowing individual states to intervene risks creating a fragmented regulatory system that undermines national consistency. In that scenario, stricter jurisdictions could effectively block federally approved products across the country.

Gambling labels under scrutiny

A central issue in the lawsuits is how prediction markets are defined.

State regulators have moved to classify them alongside sports betting and casino-style gambling.

Coinbase rejects this comparison, arguing that the mechanics are fundamentally different.

Prediction markets operate as marketplaces that match buyers and sellers who take opposing views on future events.

Prices are set by market demand rather than by a house that manages odds.

Coinbase says this structure aligns prediction markets with derivatives trading, not wagering, and places them within the scope of federal commodities law rather than state gaming statutes.

Federal oversight and compliance claims

Coinbase has also pointed to the regulatory obligations attached to CFTC-supervised markets.

These include monitoring for manipulation, position limits, and ongoing compliance requirements designed to protect market integrity.

According to the exchange, these safeguards already address many of the consumer protection concerns cited by state regulators.

Ryan VanGrack, Coinbase’s Vice President of Legal, has argued that state-level intervention risks duplicating or conflicting with federal oversight.

The company maintains that pulling prediction markets under local gambling rules ignores how federally regulated derivatives markets operate and threatens uniform supervision.