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

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

Coinbase has filed lawsuits against Illinois, Michigan, and Connecticut, while challenging state efforts to regulate prediction markets and asking federal courts to clarify who has oversight authority.

In its filings, the crypto exchange is seeking declaratory and injunctive relief, arguing that prediction markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC) rather than state gaming regulators.

Who Controls Prediction Markets?

The company stated that federal law already assigns regulatory authority for these products to the CFTC, which leaves states without the power to restrict or prohibit them 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 across 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 sought to classify event contracts, particularly those linked to sports outcomes, as illegal gambling unless operators obtain state-issued betting licenses.

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

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

Coinbase’s Chief Legal Officer, Paul Grewal, tweeted

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

The lawsuits arrive amid growing scrutiny from state regulators as prediction markets have surged in popularity. Platforms such as Kalshi and Polymarket have generated billions of dollars in trading volume over the past year and have drawn increased regulatory attention as a result.

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

Prediction Markets Boom

Regulatory woes aside, the sector has also seen fresh momentum in 2025 from new product launches, reinforcing expectations of broader adoption. Robinhood CEO Vlad Tenev recently predicted significant long-term growth for crypto-based prediction markets. The exec even described the sector as entering the early stages of a “prediction market supercycle.”

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