Coinbase is suing Michigan, Illinois and Connecticut, challenging efforts by those states to assert regulatory authority over prediction markets as the cryptocurrency exchange prepares to expand into the sector.
The company said the states have taken or threatened enforcement actions against prediction market operators despite lacking jurisdiction. It warned that similar measures could be directed at Coinbase as it launches its own offering.
Coinbase, which is targeting the states’ attorneys general in the suits, said it will seek court orders affirming that state regulators cannot interfere with what it describes as the Commodity Futures Trading Commission’s (CFTC) exclusive authority over prediction markets.
The company argues that Congress has already placed such markets under federal oversight and that state-level intervention conflicts with established law.
The suits follow Coinbase’s recent announcement that it is entering the prediction market segment, as part of a diversification strategy focused on increasing its revenue beyond traditional cryptocurrency trading.
Prediction markets allow participants to trade contracts tied to the outcomes of real-world events, including elections, economic indicators and sports contests.
The sector has grown rapidly over the past year, attracting heightened scrutiny from both state and federal regulators.
Coinbase is offering its prediction market product through a non-exclusive integration with Kalshi, a federally regulated prediction market operator.
Kalshi has been at the centre of multiple regulatory disputes with state authorities, as states and gaming interests seek to classify prediction markets under gambling statutes.
The firm and other industry players argue that their products are financial derivatives subject to federal commodities law, rather than state gambling regulation.
Prediction market operators on a tightrope
Kalshi, Robinhood and Crypto.com have all been involved in disputes with state regulators over whether their offerings violate local gambling laws.
In November, a federal judge in Las Vegas allowed Nevada gaming regulators to pursue enforcement actions against Kalshi’s sports-related contracts, ruling that the company was required to comply with state regulations.
That decision highlighted the legal uncertainty surrounding the regulatory paradigm for prediction markets.
State agencies and casino interests have consistently argued that prediction markets resemble wagering activities and should therefore fall under state gambling oversight.
By contrast, prediction market operators have pressed for federal supervision by the CFTC, citing existing commodities law and prior approvals of certain event-based contracts.
The Coinbase lawsuits highlight a widening dichotomy between state and federal interpretations of regulatory authority in this area.
With conflicting court rulings emerging across jurisdictions, legal analysts have indicated that the Supreme Court could ultimately be asked to resolve the dispute as early as next year.
CFTC chair could chart new course
Michael Selig has been confirmed as chairman of the CFTC, a move that coincides with the planned departure of Commissioner Caroline Pham.
During her tenure, Pham was widely viewed as more receptive to the argument that prediction markets fall under federal commodities law rather than state gambling statutes, aligning with the position taken by firms such as Kalshi and now Coinbase.
Her public comments and regulatory approach suggested a proclivity toward CFTC-led oversight, particularly as disputes between state regulators and prediction market operators intensified.
Selig’s position on prediction markets is less clearly defined. During his nomination hearing, he did not commit to a specific regulatory approach, offering a noncommittal assessment of how the CFTC should handle event-based contracts.
His confirmation introduces uncertainty at a time when prediction markets are expanding rapidly and facing legal challenges across multiple states, with unresolved questions about whether federal or state authorities ultimately have jurisdiction.