Coinbase sues three U.S. states, arguing prediction markets are CFTC-regulated derivatives, not state-governed gambling, in a key test of federal authority.
Summary
- Coinbase filed lawsuits against Michigan, Illinois, and Connecticut over efforts to block or restrict event-based prediction market products on its platform.
- The exchange argues these markets are CFTC-regulated derivatives, not gambling, warning that state-level rules would fragment national market structure and hinder innovation.
- Legal outcomes could set precedent for how prediction markets on crypto, fintech, and traditional venues are supervised across the U.S. financial system.
Coinbase has filed lawsuits against regulators in Michigan, Illinois, and Connecticut, challenging state attempts to regulate prediction markets that the cryptocurrency exchange contends fall under federal jurisdiction.
Coinbase block restriction 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 economic data releases and political events, according to court filings.
State regulators in the three jurisdictions have moved to restrict the offerings, asserting the products fall under state gambling or consumer protection laws. Coinbase maintains the products are regulated financial instruments subject to federal oversight rather than games of chance.
The exchange argues in its filings that prediction markets offering event-based contracts fall under the exclusive jurisdiction of federal regulators, particularly the Commodity Futures Trading Commission. Coinbase cited federal approvals granted to its partner platforms as evidence the products comply with U.S. law.
The company contends that allowing individual states to impose separate rules would create a fragmented regulatory environment that undermines national market consistency.
The dispute centers on whether prediction markets should be classified as gambling products or derivatives contracts. State regulators argue that retail access to outcome-based trading exposes consumers to risks similar to betting markets. Coinbase counters that prediction markets serve price-discovery and risk-management functions comparable to futures and options markets that have operated under federal oversight for decades.
The cases could establish precedent for how prediction markets are regulated as they become integrated into cryptocurrency platforms, fintech applications, and traditional exchanges. A ruling favoring state authority could result in varied restrictions across jurisdictions, while a decision for Coinbase could reinforce federal primacy over digital financial instruments.
The lawsuits underscore ongoing jurisdictional tensions as cryptocurrency platforms expand into non-traditional financial products. Legal observers expect the cases to draw attention from exchanges, regulators, and investors seeking clarity on prediction market oversight within the U.S. financial system.
