Coinbase files lawsuits in 3 states over attempts to regulate prediction markets

Coinbase (COIN), the crypto exchange that plans to add prediction markets to its platform, is taking legal action in Connecticut, Illinois and Michigan over the states' attempts to regulate those markets.

The company filed lawsuits to "confirm what is clear," Chief Legal Officer Paul Grewal wrote in a post on X on Friday: that prediction markets fall under the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC) and not individual state gaming regulators.

Prediction markets let users speculate on events by buying shares in contracts pegged to potential outcomes such as the winner of a boxing match or central bank interest-rate decisions. Coinbase on Wednesday announced plans to incorporate prediction markets, initially through integrating Kalshi. State gaming regulators are attempting to flex their muscles to prevent such services being offered on the basis they are a form of gambling.

"State efforts to control or outright block these markets stifle innovation and violate the law," Grewal wrote.

"Prediction markets are fundamentally different from sportsbooks. Casinos win only if you lose and set odds to maximize their profits," he added. "Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers."

The markets are classed as a form of derivative because their value depends on the outcome of a future event.

Congress deliberately excluded certain specific underliers from its definition of a commodity, making it clear that everything else falls within the CFTC's purview, according to Grewal.

"Coinbase brings this action to prevent Defendants from unlawfully applying Illinois gambling laws to federally regulated transactions that are subject to uniform federal law under the exclusive jurisdiction of the CFTC," the exchange's filing in Illinois dated Dec. 18 said.