Coinbase and Gemini Directly Targeted... US 'Gambling vs. Finance' Regulatory War Intensifies with New York State Lawsuit

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The New York State Attorney General's Office has filed a lawsuit against Coinbase and Gemini, classifying their virtual asset-based prediction market services as gambling. The conflict over regulatory authority between the federal and state governments appears to be escalating into a full-blown legal dispute.

According to crypto-specialized media outlet BeInCrypto on April 21 (local time), the New York State Attorney General's Office filed a lawsuit against Coinbase Financial Markets and Gemini Titan for alleged violations of state law. This marks New York State's first legal action against prediction market operators holding federal licenses. The Attorney General's Office determined that the prediction market services provided by the two companies violated New York State's strict gambling-related laws. Specifically, unlicensed sports gambling advertising and promotional activities were identified as key violations.

New York State Attorney General Letitia James has been warning since February that prediction markets could potentially violate state gambling laws. At the time, the Attorney General's Office issued an advisory to consumers and the industry, stating its policy of taking strong action against unlicensed gambling activities.

Coinbase partnered with Kalshi in January to launch prediction products that allow investment in the outcomes of real-world events, such as politics. Gemini also operates its own platform after obtaining a Designated Contract Market (DCM) license from the Commodity Futures Trading Commission (CFTC).

This lawsuit is regarded as a case where state government's gambling regulatory authority and the federal government's financial oversight authority are in direct conflict. The CFTC had already filed lawsuits on April 3 against some states, including Connecticut and Illinois, regarding their authority to regulate prediction markets. Subsequently, on April 7, a federal appeals court ruled that New Jersey could not apply its gambling laws to Kalshi, reinforcing federal preemption.

In this situation, with New York State pushing ahead with a separate lawsuit, the regulatory conflict is expected to intensify further. Legal experts anticipate that the dispute over authority between states and the federal government is likely to reach the Supreme Court.

Currently, the U.S. judicial system is exhibiting a 'circuit split,' where judgments regarding prediction market regulation differ among lower courts. This is a typical development that usually leads to a final ruling by the Federal Supreme Court. Experts believe this lawsuit will be a significant watershed in determining the legality standards for virtual asset-based prediction markets.

The virtual asset industry is pushing back, calling New York State's action excessive regulation that hinders innovation. Coinbase and Gemini are likely to maintain their stance that they are providing legal services based on federal licenses. If the power struggle between regulatory authorities is prolonged, business uncertainty for companies is expected to further expand.

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