Coinbase has taken a proactive legal stance against several state gaming authorities in an effort to secure its new prediction market business. Just days after launching this highly anticipated product, the company initiated lawsuits against regulators in Connecticut, Michigan, and Illinois, who are attempting to categorize its contracts—which allow users to bet on various real-world events, including sports—as gambling operations.
In a court filing dated December 18, Coinbase described the potential legal actions from Illinois as “imminent” and “existential” to its event-contract activities within the state. The filing stated, “Because the spectre of Illinois enforcement is imminent and existential to Coinbase”s event-contract operations in Illinois, Coinbase respectfully seeks expedited consideration of its request for a preliminary injunction.”
The launch of Coinbase”s prediction market comes at a time when the sector is experiencing intense growth, particularly as the 2024 US presidential elections approach. These markets have gained renewed interest, especially in sports betting, with recent reports indicating that over 90% of Kalshi”s trading volumes are now derived from sports events, a significant shift from the 70% focus on political forecasting observed during the elections.
Coinbase, alongside Robinhood, is leveraging a partnership with Kalshi to offer these prediction markets. This burgeoning sector has attracted major sports betting entities, including DraftKings and FanDuel, both of which are set to launch their own prediction market platforms. Notably, FanDuel plans to introduce its offerings specifically in states where it currently lacks a sportsbook presence, aiming to tap into new markets.
The regulatory environment surrounding prediction markets is becoming increasingly contentious. At least nine jurisdictions have issued cease-and-desist orders against Kalshi, including those from Illinois gaming authorities. In response to this regulatory pushback, Coinbase, Kalshi, Crypto.com, and Underdog have formed a lobbying group called the Coalition for Prediction Markets, established on December 11, to advocate against perceived state overreach.
With considerable stakes involved, major publicly traded companies are heavily investing in the future of forecasting. Coinbase”s CEO, Brian Armstrong, emphasized the importance of prediction markets, asserting that these tools operate under the jurisdiction of the Commodity Futures Trading Commission (CFTC). He warned that any state attempting to classify these markets as mere sports betting is obstructing Americans from accessing valuable resources that could aid in their financial success.
As the regulatory landscape continues to evolve, the battle between prediction market innovators and state authorities is poised to intensify, shaping the future of this emerging sector.
