Hey all, Liam here. 

Days into launching its highly anticipated prediction market product, Coinbase did what just about every other prediction market company has done. 

It sued state gaming authorities. 

Coinbase is suing authorities in Connecticut, Michigan and Illinois that seek to treat its contracts — markets where users can bet on the outcome of all manner of real-world events, such as sports — as gambling ventures. 

Or at least the company expects these states to treat them as unregulated sports bets. 

A court filing in Illinois described legal action against Coinbase over its forecasting product as “imminent” and “existential.” 

“Because the spectre of Illinois enforcement is imminent and existential to Coinbase’s event-contract operations in Illinois, Coinbase respectfully seeks expedited consideration of its request for a preliminary injunction,” the filing from December 18 reads. 

Coinbase isn’t just joining an ultra-crowded milieu. It’s also taking up arms in what’s turning into one of the most contentious regulatory battles in the US. 

With the explosion of prediction markets during the US presidential elections in 2024, these products have found a second wind through various sports markets. 

Betting on the outcome of sporting events, such as college football matches, has quickly become the dominant market for these products. 

During the 2024 presidential election, more than 70% of all volume on Kalshi was political. Now, sports events make up more than 90% of the company’s volumes, according to data collated by the pseudonymous Dune user Dash. 

Coinbase and Robinhood can both offer prediction markets through a partnership with Kalshi. 

That explosive growth has lured in heavyweight sports books, too, including DraftKings and FanDuel. 

Each of these companies is launching its own prediction market products. FanDuel is even rolling out its product specifically in states where it doesn’t operate.

“We believe this new sports opportunity lies solely in these states, as prediction markets are having a negligible impact in the states where FanDuel sportsbook is already available to customers,” Flutter CEO Peter Jackson said in November. 

Flutter is an Irish-American sports betting and gambling company that owns FanDuel.

Likewise, all that sports action is drawing scrutiny from a host of state gaming authorities. At least nine jurisdictions have issued cease-and-desist orders against Kalshi, including Illinois gaming authorities. 

The scrutiny has been so intense that Kalshi, Coinbase, Crypto.com, and Underdog have formed a lobbying group to “defend against state-level overreach.” 

The group is called the Coalition for Prediction Markets and launched on December 11. 

A lot is at stake. Large publicly traded companies are making big bets on the future of forecasting. And if state regulators continue to see the niche as sports betting, then Americans will be at a loss, says Coinbase CEO Brian Armstrong. 

“Prediction markets fall under the CFTC,” he said on Sunday. “Any state saying otherwise is keeping Americans from accessing tools that help them get ahead.”

ICYMI

• Bitcoin mining ‘may be strengthening the ruble,’ says Russian central bank
  So says Elvira Nabiullina, the governor of the Russian central bank. Although she conceded that “quantifying the impact” of crypto mining is difficult, as illegal and quasi-legal miners make up a “significant portion of the industry.”

• FTX execs settle with SEC and agree to officer-director bans
  Wall Street’s top regulator said Friday that former Alameda CEO Caroline Ellison, ex-FTX Chief Technology Officer Zixiao Wang, and former FTX Co-Lead Engineer Nishad Singh had agreed as part of a non-monetary settlement with the SEC to not work as officers or directors of publicly traded firms.

• Bitcoin-friendly senator Cynthia Lummis will not seek reelection
  In a statement posted on X on December 19, Lummis said she didn’t have the energy to keep going as a Republican legislator for the state of Wyoming.

Latest from DL Research

Story of the week

Inside Do Kwon’s sentencing: ‘an extraordinary rise and fall’

When David Patton met Do Hyeong Kwon, the former billionaire crypto tycoon was shivering in a cold Montenegrin jail.

“My God, what an extraordinary rise and fall in a few short years,” Patton, Kwon’s defence attorney, thought.

On December 11, some two years after that first encounter, Patton recalled the meeting for a packed courtroom in New York City.

And he pleaded with a federal judge to show mercy to his client.

Instead, federal Judge Paul Engelmayer wanted to send a “graphic reminder” to future fraudsters.

Post of the week

With so much contention around whether prediction markets are commodities trading under the CFTC or gambling (and should be regulated by state authorities), some have proposed just changing the laws.

But that’s far too preemptive, suggest experts.

DL News is an independent news organisation that provides original, in-depth reporting on the largely misunderstood world of cryptocurrency and decentralised finance. From original stories to investigations, our journalism is accurate, honest and responsible.

Forwarded by a friend? subscribe here.