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

Coinbase has filed lawsuits against the US states of Michigan, Illinois, and Connecticut, escalating a growing legal fight over who has the authority to regulate prediction markets in the United States.

According to a Bloomberg report, Coinbase said the three states have either taken action or threatened to act against prediction market operators, despite lacking the legal authority to do so.

The exchange said it is seeking court orders to affirm that prediction markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), not state gaming regulators.

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.

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.