Coinbase Fires Legal Salvo: Crypto Giant Sues Three States Over Prediction Market Crackdown

Coinbase isn't asking for permission anymore. The crypto exchange just filed lawsuits against three separate states, challenging their attempts to regulate prediction markets on its platform. This isn't a polite request for clarity—it's a full-scale legal assault on what Coinbase calls regulatory overreach.

The Core of the Conflict

At the heart of the battle is a fundamental disagreement. State regulators view certain prediction markets as unregistered securities or illegal gambling operations. Coinbase, and much of the crypto industry, sees them as a novel form of free speech and financial innovation—digital town squares for hedging opinions on everything from elections to box office numbers. The lawsuits claim the states are applying decades-old laws to technology they don't understand, stifling a burgeoning market before it can even breathe.

A Calculated Offensive

Filing three simultaneous suits isn't an accident. It's a strategic move to establish a broad legal precedent. By fighting on multiple fronts, Coinbase aims to create conflicting rulings that could force a higher court—or even Congress—to step in and set clear national rules. The exchange is betting millions in legal fees that the courts will see things its way, a gamble that could either open the floodgates for prediction markets or sink them for good.

The Stakes for Crypto

This fight extends far beyond betting on sports or politics. It's about who gets to control the next generation of financial products. A win for Coinbase would empower crypto platforms to innovate with fewer constraints, potentially unleashing a wave of new, speculative instruments. A loss could mean every new feature requires a 50-state regulatory approval marathon—the kind of innovation-killing process that keeps traditional finance moving at a snail's pace. After all, Wall Street has spent decades perfecting the art of creating complexity within the rules; crypto is just trying to rewrite the rulebook entirely, and sometimes it forgets to ask the old guards for their keys.

The courtroom doors have swung open. The verdict won't just decide the fate of prediction markets—it will signal whether crypto's disruptive ethos can survive its collision with the established financial world, or if it will be forced to play the same slow, expensive game as the legacy players it loves to ridicule.

Coinbase raise legal queries about jurisdiction on prediction markets 

In a filing submitted on Thursday to the United States District Court for the Northern District of Illinois, Coinbase attorneys propounded that federal law leaves no room for states to regulate event contracts traded on federally approved platforms.

The company said the Commodity Exchange Act grants the CFTC exclusive jurisdiction over swaps and similar derivatives, and event contracts clearly fall within that definition.

“Simply put, Illinois law is squarely preempted as applied to sports event contracts traded on federally regulated exchanges. But absent this Court’s intervention, Coinbase will suffer species of immediate and irreparable harm from Defendants’ attempts to intrude on this federal sphere. Declaratory and injunctive relief is warranted,” the filing read.

Coinbase continued to make their case, adding that the dispute is not limited to Illinois, even though the federal case was filed there. The company is also legally against actions taken by Michigan and Connecticut, which it says are pursuing similar regulatory approaches.

As reported by Cryptopolitan on December 12, the crypto exchange announced plans to launch a prediction market platform this past Wednesday. According to the court filing, the company plans to begin event-contract trading in the US starting January 2026. The events can relate to economics, elections, climate developments, sports, or other matters with commercial relevance.

The company said its customer base is present in Illinois, where it claims it received pushback from state authorities adamant sports-related contracts violate state law. Coinbase also mentioned it is working with Kalshi, a federally regulated derivatives exchange and designated contract market under CFTC oversight.

Illinois state actions and enforcement threats 

Coinbase also listed the enforcement actions taken by Illinois authorities in its legal filing, which included cease-and-desist letters to prediction markets trading platforms. Those letters were sent to Kalshi and Robinhood, another exchange that contracts Kalshi’s event markets through a partnership.

“The State has publicly threatened the gambling licenses of companies in Illinois that ‘participate in or facilitate” activities involving sports prediction markets. And Illinois has issued a letter to the acting Chair of the CFTC contending that “offering sports event contracts” violates state law,” the attorneys noted.

Coinbase believes these actions have made companies that are otherwise complying with federal rules question their lawfully legal rights. It reiterated that the state’s position pits federally regulated businesses against enforcement agencies, even though they follow CFTC requirements.

“Prediction markets are fundamentally different from sportsbooks. Casinos win only if you lose and set odds to maximize their profits. Prediction markets are neutral exchanges, indifferent to price, that match buyers and sellers,” the CLO Grewal remarked on X.

The company continued to say the enforcement based on state law WOULD damage its reputation as a compliant, publicly listed company. 

“Illinois’s enforcement actions, premised on the theory that Coinbase is violating state law notwithstanding Coinbase’s full compliance with federal law, would immediately undermine Coinbase’s hard-earned reputation as a leader in this space and as a public company that values compliance and follows all applicable laws.”

The filing also noted that Illinois’s sovereign immunity would prevent Coinbase from recovering lost revenue. Even if the state’s legal position were ultimately rejected, the company said it would have no way to recoup damages.

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