Coinbase recently filed lawsuits in three states—Connecticutory, Illinois, and Michigan—opening a new legal front surrounding the regulation of prediction markets in the US. In the lawsuits, the largest cryptocurrency exchange in the US argues that the state governments' efforts to restrict or ban prediction market operations exceed their authority and violate the existing federal legal framework.
Coinbase argues that prediction markets should not be grouped with traditional gambling or betting, which Capital under the purview of state gambling and gaming regulatory agencies. Instead, Coinbase asserts that prediction markets are a type of Derivative product and price discovery tool, under the exclusive oversight of the U.S. Commodity Futures Trading Commission (CFTC). Coinbase argues that states applying gambling laws to interfere with prediction markets "misidentify the nature" of these markets and create an illegal legal barrier to financial innovation.
This dispute is unfolding against the backdrop of the prediction market attracting increasing attention in the US, particularly after the explosion of platforms predicting election results, economic policies, interest rates, and major sporting events. These markets were highly controversial during the 2024 US presidential election period, when volume surged and were XEM by many investors as a "barometer" reflecting crowd expectations.
