Coinbase Fires Back: Crypto Giant Challenges Three US States Over Prediction Markets

Coinbase is throwing down the legal gauntlet—again. The exchange just filed formal challenges against regulatory actions in three separate U.S. states, directly confronting their crackdown on prediction markets.

The Regulatory Frontline

This isn't a polite request for clarification. It's a coordinated legal offensive. The move signals a strategic pivot: Coinbase is done waiting for permission and is now actively dismantling regulatory barriers it views as outdated. The company argues these state-level actions stifle financial innovation and misapply existing laws to new technology.

Why Prediction Markets Matter

Forget sports betting—this is about the future of decentralized finance. Prediction markets let users hedge on real-world events, from election outcomes to commodity prices. Regulators see gambling; crypto advocates see a revolutionary tool for price discovery and risk management. It's a classic clash of paradigms, with billions in potential market cap hanging in the balance.

A Calculated Escalation

Fighting three battles simultaneously is a massive resource drain. That tells you everything about Coinbase's conviction—and its war chest. The playbook is clear: establish favorable legal precedents in key jurisdictions, then use that momentum to pressure federal lawmakers. It's a high-stakes game of regulatory chess, and Coinbase just moved its queen.

The Bigger Picture

This fight transcends prediction markets. It's a proxy war for the entire DeFi ecosystem. A win for Coinbase here sets a template for challenging state overreach on everything from token listings to staking services. A loss could embolden regulators to pursue a more fragmented, state-by-state crackdown—the nightmare scenario for any national platform.

The outcome won't just shape a niche product. It will define how aggressively crypto giants can expand their financial arsenal before the old guard decides to play defense. After all, Wall Street hates competition—unless it's the kind they can buy, bury, or bureaucratically strangle.

Federal vs State regulatory clash

Prediction markets allow users to trade contracts tied to the outcome of real-world events, such as elections, economic indicators, or sports results. 

Coinbase and Kalshi assert that such products are akin to “financial derivatives” and therefore are subject to regulation under the federal “Commodities Exchange Act.” On the other hand, the state maintains that “prediction markets are a FORM of gambling” and are therefore subject to state gambling regulations.

Courts have issued conflicting rulings, with some judges supporting federal oversight while others allow states to impose their own rules. This has already led some companies, including Kalshi and Crypto.com, to suspend or limit services in certain states. 

On December 10, Connecticut stepped up its crackdown on unlicensed online gambling, issuing cease-and-desist orders to Robinhood, Kalshi, and Crypto.com. State regulators said the platforms’ “sports event contracts” operate illegally without proper licenses, putting users’ money and personal information at risk.

Paul Grewal said the company is seeking court orders to prevent state interference, while regulators and casino groups argue that prediction markets could bypass consumer protections included in state gaming laws.

Competition and impact on users

The moves by Crypto.com and Gemini highlight rising competition among major cryptocurrency platforms for dominance in prediction markets. Crypto.com’s partnership with ERShares and Signal Markets focuses on building data-driven intelligence tools, while Gemini has quickly launched a prediction market platform across all 50 U.S. states.

Alongside Coinbase’s entry, these developments reflect a broader race among exchanges to expand beyond traditional crypto trading and gain early leadership in this rapidly growing market.

For the user, there is the uncertainty that comes with the expansion. This can result in a prediction market either being available or not, depending on the disputes related to regulation.

Depending on court decisions, users could face delays, restrictions in certain states, or sudden changes to platform features. Whether federal or state gambling rules apply could also affect limits on participation, safety measures, and fees. Until the rules are clear, users should expect uneven access and changing conditions as platforms adjust to the shifting regulatory landscape.