In a recent lawsuit, the state of New York has targeted Coinbase and Gemini, alleging that their prediction market products, which cover areas such as sports, entertainment, and elections, are in essence unlicensed gambling operations. This claim stems from how these platforms advertise their services and function as bookmakers, with users essentially placing bets. The lawsuit highlights that these platforms allow individuals between 18 and 21 to participate, which contradicts New York's law prohibiting anyone under 21 from engaging in mobile app gambling.
The state's argument is that these prediction markets are fundamentally gambling activities, where individuals stake money on outcomes beyond their control, with the expectation of receiving something of value based on the outcome. This legal action follows similar moves by other states, including Nevada and Washington, which have also sued prediction market providers, arguing that such activities, especially those related to sports, constitute gambling rather than federally regulated swaps. The issue is currently before multiple appeals courts and is expected to eventually reach the U.S. Supreme Court.
In response, Coinbase's Chief Legal Officer, Paul Grewal, has stated that prediction markets are under federal regulation and the company will advocate for federal oversight. Gemini has declined to comment on the matter. The Commodity Futures Trading Commission (CFTC) Chairman, Mike Selig, has also weighed in, asserting that prediction markets, including those related to sports, fall under the CFTC's jurisdiction.
The CFTC has taken legal action against several states to prevent them from charging prediction market providers. Another major prediction market provider, Kalshi, was not named in the lawsuit but has its own legal proceedings, having sued the New York State Gaming Commission to establish that state gambling laws do not apply to its platform. New York State Attorney General Letitia James has described the services offered by Gemini and Coinbase as 'illegal gambling operations,' emphasizing that regardless of terminology, gambling is subject to state laws and constitutional regulations.