Coinbase is suing Illinois, Michigan and Connecticut for cracking down on the prediction market

Coinbase’s announcement of a new partnership with Kalshi to enter the prediction markets was made just a day before the lawsuits were filed.

Coinbase has filed lawsuits against Illinois, Michigan and Connecticut as it challenges state efforts to regulate prediction markets and has asked federal courts to clarify who has oversight authority.

In its filings, the cryptocurrency exchange asks for declarations and interim measures, arguing that the prediction markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC) and not state gambling regulators.

Who controls the prediction markets?

The company stated that federal law already grants regulatory authority for these products to the CFTC, leaving states without the power to restrict or ban these products under gambling statutes. The lawsuits come as Coinbase prepares to enter the prediction markets space through a partnership with Kalshi, a CFTC-regulated platform, and plans to roll out event-based contract trading in the US starting in January 2026.

Coinbase warned in court filings that state intervention could cause immediate and “irreparable harm” by blocking access to federally regulated products in certain jurisdictions. The company is responding to actions by several states that have attempted to classify event contracts, particularly those related to sports results, as illegal gambling unless operators obtain state-issued gambling licenses.

According to the crypto exchange, this interpretation is contrary to federal commodity law. The exchange said Congress granted the CFTC broad authority over derivatives and commodities, with only a limited number of exclusions that do not include sporting events. As such, Coinbase added that contracts for sports-related events will remain subject to federal oversight.

The company has also highlighted the differences between prediction markets and traditional sportsbooks. Unlike casinos, which set the odds and profit from customer losses, prediction markets function as neutral venues that connect buyers and sellers without taking on directional risk.

Coinbase Chief Legal Officer Paul Grewal tweeted

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“We are right on the law and the facts. And we will prove it.”

The lawsuits come amid growing criticism from government agencies as prediction markets have become increasingly popular. Platforms such as Kalshi and Polymarket have generated billions of dollars in trading volume over the past year and have attracted increasing attention from regulators as a result.

Earlier this month, regulators in Connecticut issued cease and desist orders against several companies offering event-based contracts, prompting legal challenges and temporary pauses in enforcement.

Prediction markets are growing

Apart from the regulatory issues, the sector has also seen a new impetus in 2025 with the launch of new products, reinforcing expectations of wider adoption. Robinhood CEO Vlad Tenev recently predicted significant long-term growth for crypto-based prediction markets. The executive even described the industry as being in the early stages of a “prediction market super cycle.”

Tenev said adoption and trading volumes could increase dramatically as platforms increasingly price real-world events using blockchain infrastructure.