On Tuesday, New York filed lawsuits against Coinbase and Gemini, contending that their prediction market offerings, which encompass sports, entertainment, and elections, are in fact unlicensed gambling products. The lawsuits highlight how these companies have advertised their prediction markets and their role as bookmakers, with the New York Attorney General's office characterizing user activity as betting and each contract as a wager. Furthermore, the suits allege that these platforms allow individuals between the ages of 18 and 21 to place bets, which contradicts New York's law prohibiting anyone under 21 from participating in mobile app gambling. The lawsuit against Coinbase succinctly states, 'What Respondent offers through its platform is quintessentially gambling: It allows a bettor to stake or risk money upon the outcome of a contest of chance or a future contingent event not under the bettor’s control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.' New York is not alone in this legal stance, as states like Nevada and Washington have also filed similar suits, arguing that such bets are indeed gambling and not federally regulated swaps.

This issue is currently pending before multiple appeals courts and is likely to be considered by the U.S. Supreme Court.

In response, Coinbase's Chief Legal Officer, Paul Grewal, has asserted that prediction markets are federally regulated national exchanges and that Coinbase will advocate for federal oversight. Gemini declined to comment on the matter. The Commodity Futures Trading Commission Chairman, Mike Selig, has supported the notion that prediction markets, including those related to sports, fall under the exclusive jurisdiction of his agency. The CFTC has taken legal action against several states to prevent them from charging prediction market providers, further complicating the regulatory landscape.

Kalshi, a major prediction market provider, was not named in the recent lawsuits but has proactively sued the New York State Gaming Commission, seeking a federal ruling that state gambling laws do not apply to its operations. New York State Attorney General Letitia James has condemned both Gemini and Coinbase's products as 'illegal gambling operations,' emphasizing that 'gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'