New York Acts on Coinbase And Gemini, Prediction Markets Face Pressure

Key Points

• Letitia James has taken legal action against Coinbase and Gemini, saying their platforms run gambling without a license.
• Concerns include age access, missing licences, tax gaps, and user exposure, with a focus on younger users.
• The dispute grows into a wider fight between state rule and federal control over prediction markets.

New York Attorney General Letitia James filed lawsuits against Coinbase Financial Markets, Inc. and Gemini Titan LLC, she claims their platforms operate as gambling without a license under state law. The case centres on system use, user risk, and the lack of licence, tax, and safety steps required in New York.

At the same time, these cases open a wider conflict.

State bodies and federal regulators now face each other over the classification of prediction markets.

Unclear Rules Turn into Court Action

Prediction markets existed for years without a fixed status. Some people treated them as forecast tools, others saw links with betting systems. Now that doubt moves into court. Letitia James states the platforms from Coinbase Financial Markets, Inc. and Gemini Titan LLC are gambling, not finance. Her claim follows a simple idea. Users risk money on future events like sports or elections, events they cannot control. Under New York law, this fits a game of chance. She stated that gambling under another name still remains gambling and cannot avoid state law.

This claim shifts focus from system design to legal label.

If called gambling, strict rules on licence, tax, and safety apply. The lawsuits say these rules were ignored.

Platform Design Raises Concern

Prediction markets appear to run on analysis, where users act on chance levels. Regulators explain a different structure after review. Reports show both platforms allowed bets on future events. They also acted like bookmakers, where each contract links to an uncertain result. In the filings, users are called bettors and each contract is called a bet. This removes the finance label and places them under gambling.

Concern grows when age rules appear.

Users aged 18 to 20 could join, while the law sets 21 for mobile sports betting. This gap creates risk and raises concern about exposure. Research shows early gambling links with depression, anxiety, mood change, and money stress. Another study shows 32% of people with a gambling disorder report suicidal thoughts.

Licence and Tax Effects Come into Focus

The lawsuits also show economic impact tied to the licence and tax. Licensed operators in New York fund schools, youth sports, and addiction support. Coinbase and Gemini, by working without a licence, are said to avoid these payments.

This creates an imbalance.

Public funding may fall, while licensed firms face a higher burden. The case seeks penalties, refunds, and fines up to three times the claimed profit. It also aims to limit marketing near colleges.

Control Fight Grows Between State and Federal Bodies

The case expands into a wider dispute over control. The CFTC claims prediction markets fall under commodity derivative rules. Under this view, they count as financial tools under federal watch.

Coinbase supports this claim.

Paul Grewal stated they are national exchanges under federal rule and confirmed plans to seek recognition. This conflict appears across states. The CFTC filed cases against Arizona, Connecticut, and Illinois. A court in Philadelphia ruled for Kalshi, supporting federal control. At the same time, Nevada regulators stopped activity by Kalshi and Coinbase, while Kalshi continues its case in New York. The result may define control lines. A federal win may reduce state power. State win may split rules across regions. 

Prediction Markets Keep Expanding but the Risks Are Following Close Behind

These lawsuits arrive at a moment when prediction markets have expanded fast since 2024. During the U.S. presidential election, their probability models drew wide attention for forecasting Donald Trump’s victory over Kamala Harris with more accuracy than traditional polling managed to deliver. That accuracy placed them in a position as both analytical tools and speculative platforms at once. Coinbase and Gemini moved into the sector in December 2025, launching nationwide services that pulled in users across the country. Regulatory clarity has not kept pace with that growth. Users see data-driven forecasting regulators increasingly see monetised uncertainty, with structured bets sitting inside a financial framework.

The Enforcement Pattern Is Getting Harder to Ignore

New York’s action connects to a broader enforcement pattern already in motion. Steps against various forms of unregulated gambling activity have already reached multiple operators. In 2025, authorities shut down 26 illegal online sweepstakes casinos. Lawsuits went after companies accused of promoting gambling to minors, and consumer and industry alerts followed to flag unregulated platforms. The regulatory approach across both traditional and digital gambling environments is tightening and prediction markets, once narrow in scope, now fall inside that expanding reach.

The Industry Now Faces Questions It Cannot Avoid

Operators face a rise in uncertainty as an immediate effect. Coinbase and Gemini now face the challenge of aligning with federal frameworks while managing state-level enforcement actions that land at the same time. Legal costs will climb, and product structures will face review. Geography-based access restrictions, stronger age verification processes, and contract design changes to fit financial classifications may all follow as operational adjustments. Platforms that build reach through open access will feel these changes. Classification sits at the centre of the broader issue. Gambling definitions applied to prediction markets would require operators to meet licensing demands, pay taxes, and follow advertising restrictions slowing expansion but building consumer protections in return.

Confirmed federal oversight could produce a unified national framework, attract institutional participants, and push prediction markets toward recognition as an asset class. Platforms that reach that outcome stand to gain significantly. Every path carries trade-offs. Fragmented regulation creates compliance difficulties, whilst strong enforcement could drive platforms offshore. A gambling label applied widely could shift public perception against these platforms. Near-term, traditional licensed gambling operators and regulated financial exchanges may find clearer rules and reduced competition working in their favour. Hybrid platforms mixing financial elements with betting structures carry the most exposure to uncertainty.

What courts decide will set the next stage. Federal pre-emption rulings could reshape the regulatory environment, whilst active disputes keep shaping platform operations across state lines. Prediction markets have moved well past the stage of experimentation. Their role grows, and the question of which regulatory framework will govern them stays unresolved.