Coinbase has escalated its legal standoff with New York regulators by transferring a high-stakes lawsuit over its prediction markets business from state to federal court, arguing that the dispute hinges on federal law rather than state gambling rules.
The exchange’s chief legal officer, Paul Grewal, confirmed the move on Wednesday, stating that the case raises “substantial questions of federal law” and should be handled at the federal level. The lawsuit was originally filed by New York Attorney General Letitia James, who alleges that Coinbase and Gemini are offering unlicensed betting products to residents.
We have removed this action to federal court pursuant to 28 U.S.C. §§ 1331, 1441, and 1442. New York’s claims necessarily raise disputed and substantial questions of federal law. They are subject to complete preemption. And New York cannot defeat federal-officer removal through… https://t.co/oYZpC1Cg6P pic.twitter.com/U2CTU7Vo7u
— Paul Grewal (@iampaulgrewal) April 22, 2026
Federal oversight vs state gambling laws
At the heart of the dispute is whether prediction markets, platforms that allow users to trade on real-world outcomes, fall under federal commodities regulation or state-level gambling laws. Coinbase argues that such markets are overseen by the Commodity Futures Trading Commission (CFTC), which it says has exclusive jurisdiction over event contracts.
Grewal emphasized that prediction markets operate as federally regulated exchanges, not gambling platforms, reinforcing Coinbase’s stance that state authorities lack jurisdiction. The outcome of this case could set a critical precedent for how these emerging financial products are classified and regulated across the United States.
Also Read: CFTC Responds to Criticism of Perpetual Futures as Crypto Derivatives Market Expands
Coinbase earlier launched its prediction markets offering nationwide earlier this year, enabling users to trade on outcomes tied to sports, politics, and cultural events, an expansion that has drawn increasing scrutiny from regulators.
States push back as legal tensions mount
New York’s lawsuit reflects a broader trend of state-level resistance. Over the past few months, multiple states have taken legal action against prediction market platforms in a bid to enforce local gambling laws and licensing requirements.
Meanwhile, the CFTC has been actively defending its authority. In recent filings, the agency challenged several states attempting to regulate event contracts, asserting that federally registered platforms fall solely within its domain. It has also partnered with the Department of Justice to block enforcement actions against certain platforms.
As the legal battle unfolds, the case is shaping up to be a defining moment for the future of prediction markets, potentially determining whether they are treated as financial instruments or regulated as online betting services.
Federal court rejects Coinbase’s bid for early relief
In August 2026, a federal judge in Connecticut denied Coinbase’s request for a preliminary injunction against state regulators.
The court found that Coinbase had not established a likelihood of success on its argument that the sports-event contracts offered through the platform qualify as “swaps” under the Commodity Exchange Act. It also rejected Coinbase’s argument that Connecticut gambling laws were preempted by federal law.
The ruling does not end the case, but it is a setback for Coinbase because the company had sought immediate protection while the broader lawsuit continued.
The court ordered the parties to continue with the federal litigation, with Coinbase required to move forward through the normal discovery and case process.
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