Coinbase Sues 3 States to Force Federal Rule on Prediction Markets

The Offensive Begins

Coinbase has stopped asking for permission. In a preemptive strike filed Thursday, the exchange sued Michigan, Illinois, and Connecticut, asking federal courts to strip state gaming regulators of their power over prediction markets. The filings argue that event contracts, even those involving sports, are derivatives under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), not local gambling products.

The timing is surgical. The lawsuits landed just hours before the Senate confirmed Michael Selig as the new CFTC Chairman. Selig, a known crypto-native and former SEC crypto counsel, now leads the very agency Coinbase wants to oversee its new product line.

COIN shares held steady at $245 (+2.8%) on Friday, shrugging off the litigation risk as the market digested the broader regulatory pivot.

The ‘Onion’ Defense

Coinbase’s legal theory rests on a specific reading of the Commodity Exchange Act. State regulators in Illinois and Connecticut have recently issued cease-and-desist orders to platforms like Kalshi, classifying their operations as unlicensed sports betting. Coinbase argues this is a constitutional overreach.

Chief Legal Officer Paul Grewal’s argument hinges on what Congress didn’t ban. He noted that federal law specifically excludes only two things from being commodities: onions and movie box office receipts.

Prediction markets fall squarely under the jurisdiction of the CFTC, not any individual state gaming regulator. State efforts to control or outright block these markets stifle innovation and violate the law. . Paul Grewal, Coinbase CLO

By exclusion, Grewal contends, sports outcomes are valid commodities. If the court agrees, it would effectively nullify state gambling laws for federally regulated exchanges.

The January Deadline

This is not an abstract debate. Coinbase plans to launch its prediction market product, powered by its partner Kalshi, in January 2026, less than a month away. Without a federal shield, the launch faces immediate obstruction from state attorneys general who view the $28 billion prediction sector as a threat to their tax-rich gambling monopolies.

The strategy mirrors Kalshi’s own playbook, which successfully sued the CFTC earlier this year to list election contracts. Now, Coinbase is using that precedent to clear the runway for a nationwide rollout, betting that a Selig-led CFTC will welcome the oversight role state regulators are trying to seize.