Coinbase Challenges State Authority on Prediction Markets

• Coinbase sues states, asserting CFTC’s exclusive authority over prediction markets.
• Legal battle intensifies over prediction markets, states challenge federal jurisdiction.
• Coinbase enters prediction market sector with Kalshi partnership, lawsuits follow.

Coinbase has filed lawsuits against the U.S. states of Michigan, Illinois, and Connecticut, asserting that the regulation of prediction markets falls solely under the jurisdiction of the Commodity Futures Trading Commission (CFTC), not state gaming authorities. The lawsuits, filed on Thursday, aim to secure court rulings that confirm the CFTC’s exclusive oversight of prediction markets, a sector that has seen significant growth in recent years.

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Coinbase’s Legal Argument

According to Coinbase, the federal government has already designated the CFTC as the sole regulator for these markets, meaning state regulators have no authority to interfere. Coinbase’s Chief Legal Officer, Paul Grewal, emphasized that state attempts to regulate or block prediction markets would hinder innovation and violate federal law. In his statement on X, Grewal said that state intervention could cause “immediate and irreparable” harm to the company, highlighting the need for legal relief.

Coinbase’s lawsuits also address the misconception that prediction markets linked to sports events fall outside the CFTC’s jurisdiction. Grewal pointed out that Congress excluded only a limited number of underliers, such as onions and box office receipts, from the commodity definition. This leaves other subjects, including sports, under the CFTC’s regulatory scope.

Coinbase recently announced its intention to enter the prediction market industry through a partnership with Kalshi, a platform regulated by the CFTC. Beginning in 2026, Coinbase plans to offer event-based contract trading across the U.S., including in Illinois. The lawsuit is a direct response to the challenges posed by state authorities, which have increasingly sought to regulate or shut down prediction markets. This sector, including platforms like Kalshi and Polymarket, has seen billions in trading volume as interest in these markets continues to rise.

State Pushback Intensifies

While prediction markets differ from traditional sportsbooks, state regulators have argued that such markets, particularly those tied to sports outcomes, should be classified as illegal gambling unless properly licensed under state law. Recently, Connecticut regulators issued cease-and-desist orders to Kalshi and other firms, claiming they were offering unlicensed sports betting products. Kalshi has since filed a lawsuit in response, securing temporary relief from a federal judge.

The rise of prediction markets has sparked growing concern among state regulators, who argue that these platforms may skirt around state gambling laws. Several states have issued warnings and taken enforcement actions against operators offering event-based contracts. While Coinbase asserts that these markets should fall under federal jurisdiction, the legal battle is far from over. The outcome of the lawsuits against Michigan, Illinois, and Connecticut will likely shape the future of prediction markets in the U.S.

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