Coinbase Escalates Regulatory Fight With Lawsuit Against 3 States

Coinbase Global Inc. has sued the states of Michigan, Illinois, and Connecticut in federal court, asking judges to stop state regulators from treating prediction markets as illegal gambling. The exchange says those matters should be regulated by the federal Commodity Futures Trading Commission (CFTC), not by state gaming authorities.

According to Coinbase, prediction market contracts are derivatives that fall under the Commodity Exchange Act, and Congress gave the CFTC the power to police those markets.

The company is seeking declaratory and injunctive relief to prevent what it calls a patchwork of state rules that could bar federally approved products from reaching consumers. Paul Grewal, Coinbase’s chief legal officer, has pushed that argument publicly.

Today @coinbase filed lawsuits in CT, MI, and IL to confirm what is clear: prediction markets fall squarely under the jurisdiction of the @CFTC, not any individual state gaming regulator (let alone 50). State efforts to control or outright block these markets stifle innovation…

— paulgrewal.eth (@iampaulgrewal) December 19, 2025

Why States Stepped In

Reports have disclosed that some states have already acted. Connecticut’s regulators issued cease-and-desist orders to platforms such as Kalshi, Robinhood, and Crypto.com, saying certain event contracts look like unlicensed sports betting under state law. Those actions helped trigger the wider legal fight as firms say they operate under federal rules.

Coinbase is not only arguing in court. The exchange plans to offer event-contract trading to US users through a partnership with Kalshi, a CFTC-regulated platform, with a rollout targeted for January 2026. That timetable is one reason Coinbase says it needs a clear federal ruling now, to avoid being blocked in some states after launching.

Market Reaction And Context

The move comes amid a broader tug-of-war over whether prediction markets are financial products or gambling. Kalshi has faced similar fights in several states, and courts have issued mixed rulings so far. Market watchers say the outcome here could decide whether federally approved event contracts are available nationwide or must be treated state-by-state.

The litigation also landed in investors’ view. Coinbase’s shares fell more than 10% at one point on the same day the suits were filed, though trading moves were also tied to wider swings in crypto prices. Reports link the stock change to both the news and underlying market trends.

If federal judges back Coinbase, the ruling could reinforce CFTC authority and make it easier for platforms regulated at the federal level to operate across state lines. If judges side with the states, companies may face licensing needs in multiple places or be forced to restrict certain contracts in some jurisdictions.

Featured image from Coinbase, chart from TradingView