Coinbase filed lawsuits against Illinois, Michigan, and Connecticut on Friday, seeking court declarations that prediction markets fall under exclusive federal oversight.
The crypto exchange argues states cannot apply gambling laws to federally regulated event contracts.
Chief Legal Officer Paul Grewal said state efforts "stifle innovation and violate the law."
The timing came after Coinbase announced its entry into prediction markets through a partnership with Kalshi.
What Happened
Coinbase filed complaints in federal courts seeking injunctive relief to prevent state gaming regulators from enforcing local gambling statutes.
The lawsuits argue the Commodity Exchange Act grants the Commodity Futures Trading Commission exclusive jurisdiction over event contracts as derivatives.
Illinois gaming authorities issued cease-and-desist letters to Kalshi, Robinhood, and Crypto.com.
The letters warned that facilitating sports-related event contracts without state gambling licenses constitutes illegal gambling.
Michigan and Connecticut regulators took similar enforcement positions.
Grewal argued Congress deliberately excluded only specific items like "onions" and "motion picture box office receipts" from the commodity definition.
This means all other subjects, including sporting events, fall within CFTC scope.
Coinbase plans to launch prediction market trading in January 2026.
The company warned state interference would cause "immediate and irreparable" business harm.
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Why It Matters
The dispute now spans 10 states including Maryland, New Jersey, Ohio, Nevada, Massachusetts, and New York.
Prediction market trading volumes exceeded $28 billion globally in 2025, with weekly peaks of $2 billion.
Kalshi, Coinbase's partner exchange, is valued at $11 billion.
Allowing states to regulate prediction markets individually would fragment liquidity and create 50 different compliance frameworks.
Coinbase argues this contradicts Congress's intent for uniform federal oversight of derivatives markets.
A federal judge in Nevada dissolved a preliminary injunction against Kalshi in late November, ruling state regulatory interests outweighed claimed harms.
That decision is now under appeal in the Ninth Circuit.
Industry observers expect the jurisdictional question may ultimately reach the Supreme Court given multiple cases proceeding through different federal circuits.
The outcome will determine whether prediction markets operate under unified federal rules or face patchwork state-by-state restrictions.
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