Coinbase Stock Rally Stalls. Sued by New York State Over "Prediction Market Gambling," Seeking at Least $2.2 Billion

TradingKey - New York State accuses Coinbase's prediction market of being illegal, triggering a more than 7% plunge in its stock price and falling below the $200 threshold.

On April 21 Eastern Time, hit by negative regulatory news, the largest U.S. cryptocurrency exchange Coinbase ( COIN) saw its stock price plunge 7.41%, breaking below the $200 mark to a current price of $195.95, directly hindering the rally momentum previously driven by positive news regarding the x402 protocol (an AI bot application store).

Coinbase stock price chart, Source: TradingView

Before the U.S. stock market opened on Tuesday, the New York State Attorney General's (NYAG) Office issued a lawsuit announcement against Coinbase, alleging that its "prediction market" constitutes "unauthorized illegal gambling services" rather than the compliant financial derivatives it claims to be.

According to the lawsuit, transactions based on outcomes of events such as sports and elections on platforms like Coinbase belong to gambling activities, and Coinbase's provision of "disguised gambling" services violates New York state law. Furthermore, the age threshold for Coinbase's prediction market is 18, while New York law stipulates a minimum age of 21 for sports betting.

Currently, prosecutors are seeking disgorgement of profits and penalties, claiming at least $2.2 billion from Coinbase. In response, Coinbase has not yet officially responded, but has claimed that prediction markets are regulated by the CFTC, implying they are legal at the federal level—a position largely consistent with Kalshi's. Previously, after the prediction platform Kalshi was ruled to be "gambling-like" by a Nevada court, the platform also stated it provides derivative contracts regulated by the CFTC and should not be subject to state gambling regulations.

In addition to Coinbase, numerous prediction platforms have faced restrictions from regulators in multiple U.S. states, which mandate that their sports-related products be included in state-level gambling regulatory systems. In response, the CFTC, in conjunction with the Department of Justice, has filed lawsuits against states including Arizona, Illinois, and Connecticut, asserting that the federal government holds regulatory authority over such businesses. It is evident that regulatory oversight of prediction markets in the U.S. is chaotic, with both state and federal authorities vying for control, which is detrimental to the industry's development.

Under this adverse regulatory environment, the development of Coinbase's prediction market may be hindered, which is unfavorable for its stock price to continue rebounding. However, an analyst at Cantor Fitzgerald remains optimistic about the contribution of the prediction market to Coinbase's stock price, stating, "Investors are shifting their focus toward new businesses like prediction markets, which are also key drivers for the next phase of growth for Coinbase and Robinhood."