Regulatory Power Struggle in Prediction Market Coin Trading: Jurisdictional Conflict Between Federal and State(州) Governments

Since Coinbase launched through a partnership with prediction market trading platform Kalshi, the regulatory landscape in the United States has become rapidly more complex. Several states, including Connecticut, Illinois, Michigan, and Nevada, have issued cease-and-desist orders and warnings, claiming that sports event-related trading contracts constitute gambling. Coinbase’s Vice President of Legal Ryan Bangrang argues that these actions are “misrepresentations of facts” and points out that the current regulatory framework is inadequate to properly oversee the derivatives market.

Why Coinbase Is Fighting Against ‘Fragmented Regulation’

Bangrang criticizes state authorities for misunderstanding the legal nature of prediction markets. His main argument is that U.S. commodity law explicitly grants the CFTC (Commodity Futures Trading Commission) exclusive jurisdiction over derivatives.

The problem is that each state attempts to exercise independent regulatory authority. Some state officials have argued in court that due to limited resources, federal oversight alone cannot effectively regulate prediction markets. Bangrang sharply refutes this, stating it is a “misrepresentation of facts,” because the CFTC has long supervised a multi-trillion-dollar derivatives market.

Coinbase’s legal team cites recent enforcement actions by the CFTC related to insider trading within event contracts as evidence that federal authorities are actively monitoring prediction markets. This demonstrates that federal agencies are engaged in oversight in this area.

The Expansion of State Power and Conflicting Legal Interpretations

The core issue in the current regulatory dispute is: “Who has jurisdiction over sports betting contracts?” Under the Commodity Exchange Act, the CFTC has a special provision allowing it to prohibit game event contracts “for public policy reasons.”

Coinbase claims that this special provision applies only to federal authorities, not states. Therefore, individual states lack a legal basis to ban prediction market trading independently.

However, some state governments continue to attempt to exclude sports contracts from the definition of swaps under federal law. Bangrang clarifies that such interpretations are not supported by the language of the statutes or legal precedents.

Exchange-Traded Prediction Contracts vs. Traditional Sports Betting: Different Legal Natures

Many confuse prediction markets with traditional sports betting. Coinbase explains that these two systems are fundamentally different in structure.

How exchange-traded prediction markets work:

• Designated contract markets like Kalshi allow buyers and sellers to set prices on an exchange supervised by the CFTC
• Participants buy and sell contracts based on their judgment
• All transactions are recorded transparently on the platform

How traditional sports betting works:

• Bookmakers set odds first
• Bettors choose based on these fixed odds
• The bookmaker acts as the counterparty, and this structure is regulated by state governments

Bangrang points out that there is no claim that the CFTC regulates sports books themselves. Only event contracts traded on exchanges are subject to federal derivatives law.

Fragmented Regulation Threatening Investor Confidence and Market Stability

This dispute reflects the broader issue of fragmented regulation that has long plagued the U.S. cryptocurrency industry. Bangrang acknowledges that state governments must retain authority over consumer protection and fraud prevention.

But what happens if derivatives markets are subjected to patchwork regulation by 50 different state agencies? Investor confidence would plummet, and market stability would be severely compromised.

Bangrang emphasizes that Congress has long chosen a unified federal regulatory framework for derivatives. Prediction markets should be treated under the same principle. For prediction markets based on cryptocurrencies to grow in the U.S., regulatory clarity and consistency are essential.