In a recent lawsuit, the state of New York has targeted Coinbase and Gemini, alleging that their prediction market products, which encompass sports, entertainment, and election outcomes, are in fact unlicensed gambling products. This claim is based on how these companies have advertised their prediction markets and their role as bookmakers within these platforms. The New York Attorney General's office has further emphasized the nature of these platforms by referring to users as 'bettors' and highlighting that each contract essentially functions as a bet. Additionally, the lawsuit points out 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 stance, as states like Nevada and Washington have also taken legal action against prediction market providers, arguing that at least sports-related bets should be classified as gambling rather than federally regulated swaps. This issue is currently pending before multiple appeals courts and is likely to be reviewed 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, on the other hand, has 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 pursuing charges against prediction market providers. Kalshi, a major prediction market provider, was not named in the lawsuit but has previously sued the New York State Gaming Commission, seeking a federal court ruling that state gambling laws do not apply to its platform. New York State Attorney General Letitia James has stated that both Gemini and Coinbase's products constitute 'illegal gambling operations,' emphasizing that gambling, regardless of its form, is subject to regulation under state laws and the Constitution.