In a recent lawsuit, New York has sued Coinbase and Gemini, asserting that their prediction market contracts, which encompass sports, entertainment, and elections, are in contravention of state laws pertaining to gambling. The lawsuit posits that the prediction market offerings provided by Coinbase and Gemini are essentially unlicensed gambling products, highlighting how these companies have advertised their prediction markets and functioned as bookmakers on their platforms. Furthermore, the lawsuit describes the behavior of users on these platforms as "bettors" and characterizes each contract as a "bet," underscoring that these platforms permit individuals between the ages of 18 and 21 to place bets, which is prohibited in New York for those under 21 using mobile apps. 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 the first state to take such action, as Nevada, Washington, and other states have also filed lawsuits against prediction market providers, arguing that sports-related bets are indeed a form of gambling and not 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 Chief Legal Officer Paul Grewal stated on social media that prediction markets are federally regulated national exchanges and that Coinbase would advocate for federal oversight. A Gemini spokesperson declined to comment on the matter.
Commodity Futures Trading Commission Chairman Mike Selig has maintained 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 and had 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 released a statement referring to 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."