In a recent lawsuit, New York has targeted Coinbase and Gemini, alleging that their prediction market offerings, which involve sports, entertainment, and elections, are in fact unlicensed gambling products. The lawsuit asserts that these platforms operate as bookmakers and allow users, referred to as 'bettors,' to place wagers, with each contract essentially being a bet.

Furthermore, the platforms are accused of permitting individuals between the ages of 18 and 21 to engage in betting activities, despite New York's laws prohibiting anyone under 21 from participating in mobile app gambling. The state's argument is that these prediction market contracts constitute gambling, as they involve staking money on the outcome of events beyond the bettor's control, with the understanding that a certain outcome will yield something of value.

This lawsuit is part of a broader trend, with states like Nevada and Washington also taking legal action against prediction market providers, arguing that their sports-related products are indeed bets and not federally regulated swaps. The issue is currently before multiple appeals courts and is likely to be heard by the U.S. Supreme Court.

In response, Coinbase's Chief Legal Officer has stated that prediction markets are federally regulated national exchanges and that the company will advocate for federal oversight. Gemini declined to comment on the matter.

The Commodity Futures Trading Commission Chairman has also weighed in, arguing that prediction markets fall under his agency's exclusive jurisdiction, and the CFTC has taken legal action to block states from bringing charges against prediction market providers. Another major prediction market provider, Kalshi, was not named in the lawsuit but has previously taken preemptive legal action against the New York State Gaming Commission.

New York State Attorney General Letitia James has stated that both Gemini and Coinbase's products are 'illegal gambling operations,' emphasizing that gambling, regardless of its form, is subject to regulation under state laws and the Constitution.