The state of New York has filed lawsuits against Coinbase and Gemini, alleging that their prediction market offerings, which involve sports, entertainment, and elections, are in fact unlicensed gambling products. According to the lawsuits, the way these companies advertise and operate their prediction markets, including their role as bookmakers, demonstrates characteristics of gambling.

The New York Attorney General's office points out that users are essentially 'bettors' and each contract constitutes a bet. Furthermore, the platforms allegedly allow 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 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 others have filed similar suits, arguing that at least sports-related bets are indeed bets and not federally regulated swaps. This issue is currently before multiple appeals courts and is likely to be taken up by the U.S. Supreme Court.

In response, Coinbase's Chief Legal Officer, Paul Grewal, tweeted that prediction markets are federally regulated national exchanges and that Coinbase would advocate for federal oversight. Gemini declined to comment. The Commodity Futures Trading Commission Chairman, Mike Selig, has argued that prediction markets, including those related to sports, fall under his agency's exclusive jurisdiction, prompting the CFTC to take legal action against several states to prevent them from charging prediction market providers. Kalshi, a major prediction market provider, was not named in the lawsuit but had previously taken preemptive legal action against the New York State Gaming Commission.

New York State Attorney General Letitia James stated that both Gemini and Coinbase's products are '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.'