Cryptocurrency exchange Coinbase Global has filed lawsuits against Michigan, Illinois, and Connecticut, arguing that they have exceeded their authority in trying to regulate prediction markets, and that this puts them at odds with federal law.
Key Takeaways
- Coinbase has filed lawsuits against Michigan, Illinois, and Connecticut over the regulation of prediction markets.
- The crypto exchange argues that only the CFTC has the authority to regulate prediction markets.
- Coinbase joins the likes of Kalshi, Crypto.com, and Robinhood in fighting states over regulation.
The lawsuits are a major escalation in an ongoing battle over who should oversee the fast-growing sector. Coinbase, the largest U.S.-based crypto exchange, announced that it will petition courts to issue orders confirming that states cannot interfere with the jurisdiction of the Commodity Futures Trading Commission (CFTC) over these markets.
Coinbase argues that Congress has already granted the CFTC the authority to regulate these markets at the federal level.
The suit follows Coinbase’s earlier announcement that it would enter the prediction market business as part of its diversification strategy. Prediction markets allow people to trade on the outcomes of future events, including sports results, economic indicators, and political events. They have also surged in popularity in the last few months.
Coinbase added that its prediction market product would be available through a non-exclusive integration with Kalshi, which has itself been involved in disputes with state regulators.
Other companies, including Robinhood and Crypto.com, have also faced legal challenges over their prediction markets.
At the heart of the conflict is a fundamental disagreement on oversight.
State regulators and casino operators say that prediction markets are essentially gambling and should fall under state gaming laws. Market operators like Kalshi and Coinbase argue that these products are federally regulated derivatives and should therefore be overseen by the CFTC.
It is a disagreement that has produced conflicting court rulings, and that could well end up in the U.S. Supreme Court.
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NCAA pushes back on Kalshi college sports proposal
The growth of prediction markets has also caused some alarm in college athletics. The latest example is the statement by the President of the NCAA, Charlie Baker. He says that the NCAA is “vehemently opposed” to a plan by Kalshi to allow trading on whether college athletes will take part in the transfer portal.
Kalshi has reportedly informed the CFTC that it plans to self-certify new markets, although it will not immediately offer transfer portal trading. Under their proposal, markets would be based on public announcements by players or teams about transfer decisions and future commitments.
Yet, Baker warned that such markets could increase pressure on student-athletes and threaten the integrity of college sports. He cited existing problems with harassment linked to lost bets and said wagering on transfer decisions would be “absolutely unacceptable.”
The college football transfer portal is set to open on Jan. 2, ensuring the debate over prediction markets and their limits is likely to intensify in the weeks ahead.
