by Enoch Mwathwa
Coinbase has escalated its regulatory fight in the United States. The crypto exchange filed lawsuits against Michigan, Illinois, and Connecticut. The move targets state-level efforts to regulate prediction markets. Coinbase argues that these actions clash with federal law. The legal push follows its recent prediction markets launch with Kalshi. Together, the events set the stage for a broader regulatory clash.
Coinbase Challenges State Authority Over Prediction Markets
Coinbase filed suits against three U.S. states, Michigan, Illinois, and Connecticut. The exchange claims the states lack authority over prediction markets. According to a Bloomberg report, Coinbase claims that only the Commodity Futures Trading Commission holds that power. The company says state gaming regulators overreached their mandate. As a result, innovation now faces unnecessary barriers.
Paul Grewal, Coinbase’s chief legal officer, outlined the case publicly on X. He argued that prediction markets fall squarely under federal commodities law. He stressed that Congress granted the CFTC exclusive oversight. Therefore, state interference violates existing statutes. Coinbase wants courts to confirm that framework.
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. 3/4
— paulgrewal.eth (@iampaulgrewal) December 19, 2025
Coinbase also pushed back on gambling comparisons. The exchange drew a clear line between sportsbooks and prediction markets. Sportsbooks profit when users lose. Prediction markets operate differently. They match buyers and sellers. They remain neutral on outcomes. Coinbase insists this distinction matters under the law.
States and Federal Regulators Clash on Market Classification
The lawsuits highlight a deeper conflict. State regulators view prediction markets as gambling products. Under that view, states claim regulatory control. Some states have already moved against market operators. These actions reflect rising concern over consumer protection and wagering risks.
Coinbase counters with federal precedent. It points to the Commodity Exchange Act. The law grants the CFTC sole jurisdiction over commodity derivatives. Coinbase argues that prediction contracts qualify as such instruments. Congress excluded only narrow categories from the definition of commodities. Sports outcomes did not make that list.
This disagreement fuels legal uncertainty. Companies face mixed signals across jurisdictions. One regulator approves. Another block. Coinbase argues this patchwork harms markets. It also raises compliance costs. Most importantly, it slows product development. The exchange wants clarity through the courts.
Coinbase’s Push Toward an “Everything Exchange
The lawsuits come at a strategic moment. Coinbase aims to expand beyond crypto trading. It now markets itself as an “Everything Exchange.” The platform plans to offer stocks, derivatives, and prediction markets. Its partnership with Kalshi marks a key step in that direction.
Prediction markets fit this broader vision. They attract active traders. They also create new revenue streams. Coinbase sees them as financial tools, not games of chance. That framing aligns with its push into regulated markets. It also explains the aggressive legal stance.
Recent moves reinforce this strategy. Coinbase has reentered India after past regulatory exits. It continues to add new products in the U.S. Despite legal pressure, it keeps expanding. The company believes federal courts will side with its interpretation. If that happens, prediction markets could scale fast.
Still, the outcome remains uncertain. Courts must weigh federal authority against state powers. The rulings could shape the future of prediction markets nationwide. They may also set limits on state intervention. For Coinbase, the stakes extend beyond one product. The case could define its next phase of growth.
#blockchain #crypto, #decentralized, #distributed, #ledger
