Coinbase’s announcement of a new partnership with Kalshi to enter prediction markets came just a day before the lawsuits were filed.
Coinbase has filed lawsuits against Illinois, Michigan and Connecticut, while challenging state efforts to regulate prediction markets and asking federal courts to clarify who has oversight authority.
In its filings, the cryptocurrency exchange seeks injunctive and declaratory relief, arguing that prediction markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC) rather than state gaming regulators.
Who controls prediction markets?
The company claimed that federal law already assigns regulatory authority for these products to the CFTC, leaving states without the power to restrict or ban them under gaming statutes. The lawsuits come as Coinbase prepares to enter the prediction markets space through a partnership with Kalshi, a CFTC-regulated platform, and plans to roll out event-based contract trading in the US starting in January 2026.
Coinbase warned in court filings that state intervention could cause immediate and irreparable “irreparable harm” by blocking access to federally regulated products in certain jurisdictions. The company is responding to actions by several states that have sought to classify event contracts, particularly those tied to sports results, as illegal gambling unless operators obtain state-issued betting licenses.
According to the cryptocurrency exchange, this interpretation conflicts with federal commodity law. The exchange said Congress gave the CFTC broad authority over derivatives and commodities, with only a limited set of exclusions that do not include sporting events. As such, Coinbase added that sports-related event contracts remain subject to federal oversight.
The company has also highlighted the differences between prediction markets and traditional bookmakers. Unlike casinos, which set probabilities and profit from customer losses, prediction markets function as neutral venues that match buyers and sellers without taking on directional risks.
Coinbase Chief Legal Officer Paul Grewal tweeted
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“We are right about the law and the facts. And we will prove it.”
The lawsuits come amid increasing scrutiny from state regulators as prediction markets have gained popularity. Platforms like Kalshi and Polymarket have generated billions of dollars in trading volume over the past year and have attracted increased regulatory attention as a result.
Earlier this month, Connecticut regulators issued cease-and-desist orders against several companies offering event-based contracts, prompting legal challenges and temporary pauses in enforcement.
Rise of prediction markets
Regulatory issues aside, the sector has also seen new momentum in 2025 thanks to the launch of new products, reinforcing expectations for broader adoption. Robinhood CEO Vlad Tenev recently predicted significant long-term growth for cryptocurrency-based prediction markets. The executive even described the sector as entering the early stages of a “prediction market supercycle.”
Tenev said adoption and trading volumes could expand dramatically as platforms increasingly value real-world events that use blockchain infrastructure.
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