Nevada's attempt to halt Coinbase's prediction market has hit a roadblock as the cryptocurrency exchange stands firm, asserting its federally regulated status. The Nevada Gaming Control Board (NGCB) initiated a civil enforcement action in Carson City's First Judicial District Court on February 2nd, alleging that Coinbase Financial Markets is offering unlicensed gambling services by allowing users to engage in prediction markets related to sports events and other contracts without a state gambling license.

The NGCB is seeking a preliminary injunction to prevent Coinbase from operating in Nevada, arguing that these prediction markets constitute unlawful wagering under Nevada law. Chairman of the NGCB, Mike Dreitzer, stated that the board is serious about its obligation to protect Nevada citizens and maintain a thriving gaming industry.

Coinbase, however, is countering that its event-based contracts are federally regulated derivatives, not gambling products. The exchange launched its U.S. prediction markets last month through a partnership with Kalshi, a Commodity Futures Trading Commission (CFTC)-regulated designated contract market. Coinbase argues that as a registered Futures Commission Merchant (FCM) with the CFTC, its activities fall under federal oversight, preempting state regulations.

This legal battle highlights a growing conflict between state gaming authorities and platforms offering event-based contracts. Nevada officials are concerned about age restrictions, as Coinbase permits users aged 18 and older to trade event contracts, which is below Nevada's legal gambling age of 21. The NGCB contends that Coinbase's operation gives it an unfair advantage over licensed sportsbooks that adhere to strict compliance, tax, and location requirements.

Notably, Nevada has taken similar actions against other prediction markets. Earlier this week, a judge ordered Polymarket to cease offering event contracts in the state for a minimum of two weeks. Kalshi is also facing legal action in Nevada federal court, although it continues to operate in the state. Crypto.com, another member of the Coalition for Prediction Markets, withdrew its event contracts from Nevada after being denied injunctive relief against the NGCB.

Coinbase has also filed federal suits against regulators in Connecticut, Michigan, and Illinois, claiming federal preemption. These lawsuits indicate Coinbase's determination to defend its position and challenge state regulations that it believes infringe upon federal jurisdiction.

The outcome of this dispute could have significant implications for the future of prediction markets in the U.S. Legal experts suggest that the patchwork of rulings could ultimately lead to a resolution by the U.S. Supreme Court. The central question is whether sports-linked prediction markets will be treated as state-regulated gambling or federally regulated derivatives. The decision will impact exchanges, market operators, and consumers by defining the regulatory landscape for these innovative financial products.