Coinbase Warns: New US Tax Rules Could Crush Gamblers While Fueling Prediction Market Boom

Fresh tax guidance from the IRS is about to reshuffle the deck for crypto users—and the house always wins.

The Regulatory Hammer Drops

Coinbase’s latest analysis throws cold water on casual crypto betting. The exchange outlines how updated U.S. Treasury rules, aimed at formalizing reporting for digital asset brokers, create a stark divide. Activities traditionally viewed as gambling face a harsh new tax reality, while structured prediction markets might just get a free pass.

A Calculated Shift in Incentives

The mechanics are brutally simple. The rules sharpen the definition of taxable events, turning speculative plays into immediate tax liabilities. This doesn't just skim profits—it fundamentally changes the risk calculus. Suddenly, the allure of quick, off-the-books gains dims next to the paperwork nightmare.

Meanwhile, compliant prediction platforms operating on specific protocols could sidestep the broker classification entirely. Their automated, transparent settlement mechanisms don't just bypass the regulatory snarl—they potentially unlock a wave of institutional capital that’s been sitting on the sidelines, terrified of compliance headaches.

The Great Wall Street Pivot

Forget moonshots—the smart money is now chasing regulatory arbitrage. The framework effectively builds a moat around sanctioned activities, turning legal clarity into a competitive advantage. It’s a classic move: first, the government changes the rules, then the finance guys figure out how to charge you for a seat at the new table.

The final result? A quieter, more professionalized ecosystem where the wild volatility of meme-fueled gambling gives way to the steady, boring hum of risk-hedging and market efficiency. The degens get a tax bill, and Wall Street gets a new product line—some things never change.

Coinbase believes a major US tax change could significantly alter how gamblers place bets starting in 2026. In its latest outlook, the crypto exchange argues that a provision in President Donald Trump’s “One Big Beautiful Bill Act” may unintentionally push gamblers away from traditional casinos and sportsbooks and toward prediction markets instead.

The law, signed in mid-2025, introduces new limits on how gambling losses can be deducted against winnings, changing the tax math for frequent bettors.

Why Traditional Gamblers Could Face Higher Tax Bills

Under the new rules, gamblers will no longer be able to fully offset losses with winnings when filing taxes. Coinbase warns this could lead to situations where individuals owe taxes on “phantom income,” meaning they may be taxed on gross winnings even if they ultimately lost money overall.

For active bettors, this creates a less favorable tax environment. Even small winning streaks could trigger taxable income, while losses WOULD not be fully recognized, raising effective tax burdens and increasing the cost of traditional gambling.

Prediction Markets Gain a Potential Edge

Coinbase argues that prediction markets could benefit from this shift. Unlike sportsbooks, prediction markets operate using financial contracts similar to derivatives, which may fall under different tax treatment than gambling winnings.

As a result, tax-conscious users might find prediction markets more efficient, especially if they offer clearer reporting and fewer punitive tax outcomes. Coinbase sees this as a structural advantage that could drive broader adoption of event-based trading, covering areas such as sports, elections, and economic outcomes.

Coinbase’s Strategic Interest in the Sector

Coinbase’s stance is closely tied to its own business strategy. The exchange has recently committed to expanding access to prediction markets through a partnership with Kalshi, positioning itself as a gateway for regulated event contracts.

At the same time, Coinbase has taken an aggressive legal stance to protect this expansion. The company is currently suing regulators in Michigan, Illinois, and Connecticut, arguing that prediction markets fall exclusively under federal oversight by the Commodity Futures Trading Commission (CFTC), not state gambling authorities.

A Broader Regulatory and Market Battle

Coinbase maintains that Congress has already granted the CFTC sole authority over prediction markets, making state-level bans or restrictions invalid. These lawsuits reflect a broader struggle over whether prediction markets should be treated as financial instruments or gambling products.

If courts side with Coinbase, prediction markets could gain nationwide clarity just as tax rules make traditional gambling less attractive. That combination, Coinbase suggests, could reshape how Americans speculate on real-world outcomes, not by choice alone, but by economics and regulation.