- The exchange argues that these markets, regulated by the CFTC, should not be subject to state gaming restrictions.
- Regulators, however, maintain that operating unlicensed prediction markets constitutes illegal gambling.
Coinbase filed federal lawsuits against Connecticut, Michigan, and Illinois, arguing that state regulators cannot treat CFTC-regulated prediction markets as gambling and shut them down under local gaming laws.
The move raises the stakes ahead of the exchange’s planned January 2026 rollout of event contracts through Kalshi, and could help decide whether prediction markets develop as financial instruments or remain restricted as betting products.
The complaints ask courts to issue declaratory and injunctive relief, effectively blocking state gaming boards from using cease-and-desist powers against prediction market operators that already sit under federal commodities oversight, the exchange’s Chief Legal Officer, Paul Grewal, mentioned on X.
Coinbase warned that conflicting state actions create immediate legal and business risk for its upcoming offering and for the broader market for event contracts.
See Related: Swiss National Bank Rejects Bitcoin As Reserve Asset, Citing Volatility
Federal Vs State: Who Regulates Prediction Markets?
At the core of Coinbase’s argument lies the claim that event contracts are commodity derivatives, which fall under the exclusive jurisdiction of the Commodity Futures Trading Commission.
Coinbase framed state attempts to regulate CFTC-listed prediction markets as an overreach that conflicts with federal law and fragments a national derivatives market. However, the regulators warned that operators and intermediaries who participate in or facilitate such markets without a state license engage in illegal gambling and face potential civil or criminal penalties.
Coinbase counters that prediction markets operate as neutral exchanges matching buyers and sellers, not as bookmakers setting odds, and that treating them strictly as gambling products risks pushing activity offshore or into less supervised channels.
For now, Coinbase is betting that clarity will arrive before or soon after the January 2026 launch window, allowing its Kalshi integration to proceed without a wave of conflicting state orders.
