Coinbase sues three states over prediction market regulation

Coinbase Global Inc. has filed lawsuits against the US states of Michigan, Illinois, and Connecticut, escalating a legal fight over who has the authority to regulate prediction markets in the United States.

According to the crypto exchange, the three states are attempting to impose their own rules on prediction markets, which it argues fall under exclusive federal oversight of the Commodity Futures Trading Commission. 

In a post on X on Friday, Coinbase Chief Legal Officer Paul Grewal said they were stepping outside their authority, and the lawsuit was much needed to stop any state from interfering with a federally regulated activity.

“Congress deliberately chose to exclude only a handful of specific underliers, including “onions” and “motion picture box office receipts’ from the definition of “commodity.” This makes clear that all other subjects, including sporting events, fall within the CFTC’s scope,” he wrote.

Coinbase raise legal queries about jurisdiction on prediction markets 

In a filing submitted on Thursday to the United States District Court for the Northern District of Illinois, Coinbase attorneys propounded that federal law leaves no room for states to regulate event contracts traded on federally approved platforms.

The company said the Commodity Exchange Act grants the CFTC exclusive jurisdiction over swaps and similar derivatives, and event contracts clearly fall within that definition.

“Simply put, Illinois law is squarely preempted as applied to sports event contracts traded on federally regulated exchanges. But absent this Court’s intervention, Coinbase will suffer species of immediate and irreparable harm from Defendants’ attempts to intrude on this federal sphere. Declaratory and injunctive relief is warranted,” the filing read.

Coinbase continued to make their case, adding that the dispute is not limited to Illinois, even though the federal case was filed there. The company is also legally against actions taken by Michigan and Connecticut, which it says are pursuing similar regulatory approaches.

As reported by Cryptopolitan on December 12, the crypto exchange announced plans to launch a prediction market platform this past Wednesday. According to the court filing, the company plans to begin event-contract trading in the US starting January 2026. The events can relate to economics, elections, climate developments, sports, or other matters with commercial relevance.

The company said its customer base is present in Illinois, where it claims it received pushback from state authorities adamant sports-related contracts violate state law. Coinbase also mentioned it is working with Kalshi, a federally regulated derivatives exchange and designated contract market under CFTC oversight.

Illinois state actions and enforcement threats 

Coinbase also listed the enforcement actions taken by Illinois authorities in its legal filing, which included cease-and-desist letters to prediction markets trading platforms. Those letters were sent to Kalshi and Robinhood, another exchange that contracts Kalshi’s event markets through a partnership.

“The State has publicly threatened the gambling licenses of companies in Illinois that ‘participate in or facilitate” activities involving sports prediction markets. And Illinois has issued a letter to the acting Chair of the CFTC contending that “offering sports event contracts” violates state law,” the attorneys noted.

Coinbase believes these actions have made companies that are otherwise complying with federal rules question their lawfully legal rights. It reiterated that the state’s position pits federally regulated businesses against enforcement agencies, even though they follow CFTC requirements.

“Prediction markets are fundamentally different from sportsbooks. Casinos win only if you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers,” the CLO Grewal remarked on X.

The company continued to say the enforcement based on state law would damage its reputation as a compliant, publicly listed company. 

“Illinois’s enforcement actions, premised on the theory that Coinbase is violating state law notwithstanding Coinbase’s full compliance with federal law, would immediately undermine Coinbase’s hard-earned reputation as a leader in this space and as a public company that values compliance and follows all applicable laws.”

The filing also noted that Illinois’s sovereign immunity would prevent Coinbase from recovering lost revenue. Even if the state’s legal position were ultimately rejected, the company said it would have no way to recoup damages.

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