Coinbase Initiates Legal Action Against Michigan, Illinois, and Connecticut Over Prediction Market Regulations

Coinbase has taken legal action against the states of Michigan, Illinois, and Connecticut, intensifying a legal battle regarding who has the authority to regulate prediction markets in the United States.

Key Takeaways:

Coinbase contests state authority over prediction markets, insisting they should fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC).
The lawsuits follow Coinbase's partnership with Kalshi in anticipation of a predicted market launch in 2026 in the U.S.
States argue that prediction markets are similar to gambling, a claim Coinbase refutes.

According to a report from Bloomberg, Coinbase has accused the three states of either taking or planning to take action against operators of prediction markets without possessing the proper legal authority.

The exchange seeks court orders to establish that prediction markets are solely governed by the CFTC and not by state gaming regulators.

Coinbase Sues Michigan, Illinois, and Connecticut Over Prediction Market Regulation

Legal Action Correlates with Kalshi Partnership Before 2026 Launch

The lawsuits were filed just a day after Coinbase unveiled its plans to provide event-based contract trading through a partnership with Kalshi, a platform regulated by the CFTC for prediction markets.

As outlined in the court filings, Coinbase aims to offer access to prediction markets for U.S. customers starting in January 2026, including those located in Illinois.

Paul Grewal, Coinbase’s Chief Legal Officer, stated that the cases intend to clarify a legal point that the company believes is already decided.

“Prediction markets clearly belong to the jurisdiction of the CFTC and not to individual state gaming regulators,” Grewal declared in a post on X.

He emphasized that state-level attempts to restrict or control these markets stifle innovation and contradict federal law.

In its filing in Illinois, Coinbase warned that interference from the state could lead to “immediate and irreparable” damage to its business operations.

The company seeks both declaratory and injunctive relief to avert enforcement actions while the matter is under judicial review.

The Core of the Dispute: Gambling vs. Prediction Markets

The central issue in the dispute is whether prediction markets, especially those related to sports outcomes, should be classified as gambling.

Several states have contended that event-based contracts resemble unauthorized sports betting, so they should be monitored by state regulators.

In contrast, Coinbase rejects this characterization, asserting that prediction markets function as neutral marketplaces that connect buyers and sellers rather than setting odds for profit.

Grewal also referenced Congress's definition of commodities, indicating that lawmakers have only excluded a limited range of items from the CFTC's jurisdiction, such as onions and box office revenues.

By this rationale, he argued, sports-related event contracts should still fall within the agency's scope.

Connecticut Targets Kalshi and Robinhood in Recent Enforcement Actions

This series of lawsuits follows recent enforcement actions by regulators in Connecticut, who earlier this month issued cease-and-desist orders to Kalshi, Robinhood, and Crypto.com.

Kalshi contested this action in court and achieved temporary relief after a federal judge suspended state enforcement pending the progress of the case.

As previously reported, cryptocurrency exchanges and platforms are rapidly advancing into the prediction market sector, with Gemini and PancakeSwap recently entering the fray with new offerings.

Competitors like Coinbase and Crypto.com are also exploring similar expansions as the competition heats up in this evolving market.