Coinbase is suing three US states, arguing that prediction markets are CFTC-regulated derivatives and not state-run gambling, in a key test of federal authority.
Summary
- Coinbase has filed lawsuits against Michigan, Illinois and Connecticut over attempts to block or restrict event-based prediction market products on its platform.
- The exchange states that these markets are CFTC-regulated derivatives and not gambling, and warns that state-level regulations would fragment the national market structure and stifle innovation.
- Legal outcomes could set a precedent for how prediction markets are policed across crypto, fintech, and traditional venues in the U.S. financial system.
Coinbase has filed lawsuits against regulators in Michigan, Illinois and Connecticut, challenging state efforts to regulate prediction markets, which the cryptocurrency exchange claims are under federal jurisdiction.
Coinbase block limiting market products
The legal action targets state efforts to block or restrict prediction market products that allow users to trade contracts tied to real-world outcomes, including the release of economic data and political events, court documents show.
State regulators in the three jurisdictions have taken steps to restrict supply, claiming the products fall under state gambling or consumer protection laws. Coinbase maintains that the products are regulated financial instruments subject to federal supervision and are not gambling.
The exchange argues in its filings that prediction markets that offer event-based contracts fall under the exclusive jurisdiction of federal regulators, specifically the Commodity Futures Trading Commission. Coinbase cited federal approvals granted to its partner platforms as evidence that the products comply with U.S. law.
The company claims that allowing individual states to impose separate rules would create a fragmented regulatory environment that undermines the consistency of the national market.
The dispute centers on whether prediction markets should be classified as gambling products or as derivatives contracts. Government regulators argue that retail access to results-based trading exposes consumers to risks similar to those in the gambling markets. Coinbase argues that prediction markets serve price discovery and risk management functions similar to futures and options markets that have operated under federal supervision for decades.
These cases could set a precedent for how prediction markets are regulated as they are integrated into cryptocurrency platforms, fintech applications and traditional exchanges. A ruling in favor of state authority could result in different restrictions in different jurisdictions, while a decision in favor of Coinbase could strengthen federal primacy over digital financial instruments.
The lawsuits underscore ongoing tensions in the jurisdiction as cryptocurrency platforms expand into non-traditional financial products. Legal observers expect the cases to draw the attention of exchanges, regulators and investors seeking clarity on the oversight of prediction markets within the U.S. financial system.
