In a recent lawsuit, New York has targeted Coinbase and Gemini, alleging that their prediction market products, which cover sports, entertainment, and elections, are essentially unlicensed gambling products. According to the lawsuit, these platforms have been advertised and operated in a manner that is indistinguishable from traditional gambling, with users being referred to as 'bettors' and each contract being deemed a 'bet'. Furthermore, it is claimed that these platforms allow individuals between the ages of 18 and 21 to place bets, which is in direct contravention of New York's laws prohibiting gambling on mobile apps for those under 21. The lawsuit against Coinbase succinctly captures this argument, stating that the platform's offerings constitute 'quintessentially gambling' as they allow bettors to stake money on the outcome of events beyond their control.
This legal action is part of a broader trend, with states like Nevada and Washington also pursuing similar lawsuits against prediction market providers, contending that at least sports-related bets should be classified as bets rather than federally regulated swaps. The issue is currently before multiple appeals courts and is likely to eventually be heard 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 the company will advocate for federal oversight.
Gemini, on the other hand, has declined to comment. The Commodity Futures Trading Commission Chairman, Mike Selig, has weighed in, arguing 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. Notably, Kalshi, a major prediction market provider, was not named in the lawsuit but has proactively 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 been clear in her stance, stating that both Gemini and Coinbase's products constitute 'illegal gambling operations', emphasizing that 'gambling by another name is still gambling' and is subject to state laws and constitutional regulations.