Coinbase Sues Three States Over Prediction Market Regulation

Coinbase has sued Connecticut, Illinois, and Michigan over the regulation of prediction markets in the United States. According to a post on X, Coinbase’s Chief Legal Officer, Paul Grewal, affirmed that the lawsuits aim to clarify that prediction markets fall under the authority of the Commodity Futures Trading Commission (CFTC). 

Coinbase Argues That the States’ Officials Are Overstepping Boundaries

Coinbase argues that state officials are overstepping their jurisdiction by labelling prediction markets as gambling activities.  Notably, this legal battle is important for the future of crypto-based financial products.

Prediction markets enable individuals to bet on the outcomes of future events such as elections, economic trends, or sports games. 

Users can buy and sell shares in contracts related to specific outcomes. However, the three states’ regulators see prediction markets differently. They believe these markets are like betting platforms and should follow state gambling laws. 

Based on their belief, the regulators have tried to block or limit these services in their states, prompting Coinbase to seek legal help. 

No doubt, the outcome of these lawsuits could have significant effects. If Coinbase wins, it may limit how much individual states can treat prediction markets as gambling. This could also lead to more widespread use across the country. 

On the other hand, if the states win, crypto exchanges and prediction market platforms might have to deal with different rules in each state. This could increase their costs and restrict access to the market.

Coinbase Set to Push Into Prediction Markets

Meanwhile, the prominent exchange’s move comes a few days after it revealed it plans to enter prediction markets and tokenized equities. 

Recall that the exchange has joined the Coalition for Prediction Markets, a newly formed group organized by Kalshi and Crypto.com. The coalition aims to expand industry cooperation and speak with policymakers about keeping rediction markets open to users in the U.S. 

Faryar Shizad, Coinbase’s chief policy officer, said the exchange sees prediction markets as tools that help widen access to information. He noted that the coalition can play a crucial role as lawmakers examine how to regulate this rapidly growing area. 

Similarly, Gemini, led by the Winklevoss twins, received formal approval from the CFTC to operate regulated prediction markets in the country. The authorization grants Gemini Titan the capability to offer designated contract markets in the United States.

Connecticut Accuses Firms of Illegal Activity

It is also worth noting that Connecticut issued a cease-and-desist order to Robinhood, Kalshi, and Crypto.com. It accused the three firms of running unlicensed sports betting through online event contracts.

According to the agency, the platforms made event contracts available to users, which resulted in online gambling. DCP Commissioner Bryan Cafferelli said that none of the companies had permission to offer wagering in Connecticut. Bryan also stated that the contracts violated other state rules, including allowing bets from users under the age of 21.