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

Coinbase just dropped a legal grenade on three states—and it’s about more than just paperwork.

Why the gloves are off

The crypto giant isn’t asking nicely anymore. It’s suing the financial regulators in Michigan, Illinois, and Connecticut, arguing their approach to prediction markets is stuck in the last century. The move cuts straight to the heart of a core debate: are these platforms innovative financial tools or just glorified gambling?

The regulatory wall

State officials see red flags. Their playbook treats event-based trading platforms with extreme caution, often slapping them with the same rules as sports betting. It’s a stance that effectively freezes innovation at the state line, forcing companies to navigate a costly, fragmented maze of compliance—or just avoid those states altogether.

Coinbase’s counter-punch

The exchange is swinging back with a classic tech argument: outdated laws shouldn’t strangle new technology. Its lawsuit claims the states’ rigid stance bypasses the real utility of prediction markets—hedging risk, gauging public sentiment on everything from elections to supply chains—and wrongly conflates it with pure chance. It’s a bet on the courts seeing things their way.

The stakes for crypto

This isn’t just a Coinbase problem. The outcome could set a precedent, either opening the door for more complex DeFi products or slamming it shut with a heavy dose of regulatory skepticism. A win for the states might just send other innovators looking for friendlier shores—or back to the drawing board.

Prediction markets have always made traditional finance types nervous. After all, what’s more threatening than a transparent, crowd-sourced oddsmaker that could one day make their expensive research departments look obsolete?

Coinbase Lawsuit Follows Kalshi Deal Ahead of 2026 Prediction Market Launch

The lawsuits come one day after Coinbase announced plans to offer event-based contract trading through a partnership with Kalshi, a CFTC-regulated prediction markets platform.

According to court filings, Coinbase plans to roll out prediction market access to U.S. customers starting in January 2026, including in Illinois.

Coinbase Chief Legal Officer Paul Grewal said the cases are meant to clarify a point the company views as settled law.

“Prediction markets fall squarely under the jurisdiction of the CFTC, not any individual state gaming regulator,” Grewal said in a post on X.

He argued that state-level efforts to block or control these markets undermine innovation and conflict with federal law.

Some states think prediction markets fall outside the CFTC’s jurisdiction when they relate to sports. But Congress deliberately chose to exclude only a handful of specific underliers—including “onions” and “motion picture box office receipts”—from the definition of “commodity.”…

In its Illinois filing, Coinbase warned that state interference could cause “immediate and irreparable” harm to its business.

The company is seeking both declaratory and injunctive relief to prevent enforcement actions while the courts weigh the issue.

At the center of the dispute is whether prediction markets, particularly those tied to sports outcomes, should be treated as gambling.

Several states have argued that event-based contracts resemble unlicensed sports betting, placing them under state jurisdiction.

Coinbase disputes that framing, saying prediction markets operate as neutral exchanges that match buyers and sellers rather than setting odds for profit.

Grewal also pointed to Congress’s definition of commodities, noting that lawmakers excluded only a narrow list of items from CFTC oversight, such as onions and box office receipts.

By that logic, he said, sports-related event contracts remain within the agency’s remit.

Connecticut Targets Kalshi and Robinhood

The lawsuits follow recent enforcement actions by Connecticut regulators, who earlier this month issued cease-and-desist orders to Kalshi, Robinhood and Crypto.com.

Kalshi challenged the MOVE in court and won temporary relief after a federal judge paused state enforcement while the case proceeds.

As reported, crypto exchanges and platforms are accelerating their push into prediction markets, with Gemini and PancakeSwap emerging as the latest players to roll out new offerings.

Rivals such as Coinbase and Crypto.com have also been exploring similar expansions as competition intensifies.