Legal Battle Aims to Classify Prediction Markets as Federally Regulated Commodities
Coinbase has launched legal action against regulators in Connecticut, Illinois, and Michigan, seeking to protect its planned prediction markets under federal law. The lawsuits argue that prediction markets operating on Commodity Futures Trading Commission (CFTC)-regulated platforms fall under federal commodities regulation not state gambling statutes marking a significant escalation in the debate over how event-based contracts should be classified in the United States.
At the core of the lawsuits is the claim that prediction markets are governed exclusively by the Commodity Exchange Act (CEA). Coinbase contends that allowing individual states to regulate or ban federally supervised prediction markets would undermine the US federal regulatory framework, effectively letting the most restrictive state dictate national policy.
The exchange emphasized that Congress deliberately defined commodities broadly under the CEA, excluding only a narrow set of underliers. Coinbase argues this omission signals clear legislative intent to permit event-based derivatives, including markets tied to economic, political, or social outcomes.
Coinbase draws a sharp distinction between prediction markets and sportsbooks. Unlike casinos, which profit from customer losses and set odds accordingly, prediction markets function as neutral marketplaces that simply match buyers and sellers. According to Coinbase, treating these markets as gambling misrepresents their structure and conflicts with federal derivatives law, including CFTC surveillance and position limits.
The strategy mirrors ongoing litigation involving Kalshi, a CFTC-designated exchange that has faced mixed rulings across multiple states. Courts in some jurisdictions have sided with state regulators, while others have granted temporary relief pending further review.
With Coinbase now joining the fight, federal courts may be forced to deliver a definitive ruling on whether US prediction markets are financial instruments or gambling products. The outcome could determine whether these markets scale nationally—or remain fragmented by state-level enforcement.
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