Nevada authorities have initiated a lawsuit against Coinbase Financial Markets, alleging the company is offering unlicensed sports wagering within the state. The Nevada Gaming Control Board filed the civil enforcement action in the First Judicial District Court of the State of Nevada, Carson City, seeking a temporary restraining order and a preliminary injunction to halt Coinbase's operations of what they deem an unlicensed derivatives exchange and prediction market related to sporting events.
The heart of the issue lies in Nevada's stringent gaming regulations, which require companies offering wagering services to be licensed. The Gaming Control Board contends that Coinbase's activities, particularly those involving sports event contracts, constitute unlicensed wagering rather than regulated financial products. This stance challenges the argument that prediction markets should fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC) if structured as derivatives.
Mike Dreitzer, chair of the Nevada Gaming Control Board, stated that the board is committed to operating a thriving gaming industry and protecting Nevada citizens, emphasizing that the action against Coinbase reinforces this obligation.
This legal action comes shortly after Coinbase announced the launch of prediction markets in all 50 U.S. states through a partnership with Kalshi. While Kalshi is overseen by the CFTC at the federal level, it, and by extension Coinbase, can still face legal challenges from state regulators like those in Nevada.
Notably, Coinbase is not the only platform facing scrutiny in Nevada. A similar legal challenge has been brought against Polymarket, another prediction market platform. A Nevada court recently granted a temporary restraining order against Polymarket, preventing it from offering bets on event-based contracts to state residents. The court cited the potential for "immediate" and "irreparable" harm to the authorities' ability to regulate betting without a license. A hearing is scheduled for February 11 to decide on a preliminary injunction against Polymarket.
These cases could have broader implications for the regulation of prediction platforms like Kalshi and Polymarket, potentially challenging the CFTC's authority to regulate them without clear state laws. If upheld, these platforms might be compelled to obtain state-by-state gambling licenses or discontinue offering sports-related markets, which can represent a significant portion of their trading volume.
Coinbase has previously taken a proactive stance on this issue, filing lawsuits in December against regulators in Connecticut, Illinois, and Michigan. These lawsuits seek declarations that prediction markets listed on a CFTC-regulated venue fall under federal commodities law, preempting state gambling codes. However, resolution of those cases is expected to be lengthy, leaving state regulators with the immediate ability to restrict access through temporary restraining orders and injunctions.
The Nevada court's decision regarding Polymarket rejected the assertion that the U.S. Commodity Exchange Act grants exclusive jurisdiction to the CFTC over event contracts. The court indicated that Nevada retains the authority to apply its own gaming laws, at least while a final decision on the merits is pending. The Nevada Gaming Control Board believes Polymarket operates as unlicensed wagering instead of a regulated financial product marketplace. The temporary restraining order against Polymarket aims to prevent activity that could undermine state safeguards related to betting integrity, age verification, and responsible gaming standards.
Cointelegraph reached out to Coinbase for comment on the Nevada lawsuit, but has not yet received a response. The cases against Coinbase and Polymarket highlight the ongoing tension between state gaming statutes and arguments for federal preemption in the regulation of prediction markets. The outcomes of these legal battles could significantly shape the future of prediction markets in the U.S..