Coinbase faces Nevada lawsuit as states move against crypto prediction markets

The US-based crypto exchange Coinbase is facing new legal scrutiny from Nevada regulators, who argue it is providing illegal sports betting services.

The case is adding to the pressure from state authorities, which say that crypto prediction markets resemble gambling, even though they are allowed at the federal level. Regulators say the company offered contracts linked to sports events that amount to illegal betting under Nevada law.

The Gaming Control Board is requesting that a court grant both a temporary restraining order and a preliminary injunction against the business. If successful, the orders would prevent Coinbase from operating any derivatives exchange or prediction market connected to sports betting in Nevada immediately.

Mike Dreitzer, the chair of the Nevada Gaming Control Board, said the regulator has a duty to protect the state’s gaming industry and its residents. He said the lawsuit shows the board’s responsibility to ensure that gambling complies with state law and is properly regulated.

Coinbase’s prediction market rollout faces scrutiny at a critical moment

The lawsuit was filed less than a week after Coinbase announced it would launch national prediction market services. The services were provided in all 50 US states, the company said, in connection with a partnership with Kalshi, a federally regulated prediction market platform. 

Coinbase itself cites this federal oversight as evidence that its prediction market complies with US law. However, Nevada’s move also shows that state regulators don’t always see eye to eye. 

While the CFTC oversees some event-based contracts, gambling laws are still controlled by states, depending on the jurisdiction. In Nevada, federal approval does not overrule state gambling regulations when the product closely resembles sports betting, officials say.

There are many cases in which crypto companies must rely on federal approvals, but states can exercise quite sweeping law-enforcement powers. When these two systems clash, companies can be put in an awkward position. T

he aftermath of the Nevada case could affect how prediction markets operate nationwide, according to some experts. Courts ruling in favor of state regulators might prompt crypto firms to limit the size of their product line or redesign their offerings to avoid being categorized as gambling.

States tighten scrutiny as prediction markets expand

Nevada has previously taken action against other prediction market platforms, including Polymarket. Just last week, a Nevada court approved a temporary restraining order that required Polymarket’s operator to stop offering event-based betting to residents of the state. 

In that instance, the court sided with regulators when it held that unlicensed betting had created “immediate and irreparable harm” to the state’s ability to supervise and control gambling activity. The finding reinforced Nevada’s case that prediction markets based on real-world events can fall under gambling laws. The increase in state-by-state lawsuits is prompting alarm across the crypto industry. 

Prediction markets operating primarily under CFTC scrutiny are likely to face greater legal scrutiny unless lawmakers create clearer regulations, investors fear. Some analysts say the crisis could spark a broader federal-state dispute over who holds decision-making authority over prediction markets. If more states follow Nevada, Coinbase and Polymarket could potentially find themselves embroiled in legal fights in several jurisdictions at once. 

Others say the disputes highlight gaps in the current regulatory system. Prediction markets are a crossroads of finance, technology, and gambling that cannot be easily accommodated in current laws; they are at the fringes of a few domains.

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