New York Sues Coinbase and Gemini: Prediction Markets Labeled Illegal Gambling

New York Attorney General Letitia James filed lawsuits on April 21 against Coinbase Financial Markets and Gemini Titan, accusing both of running prediction markets without a license from the New York State Gaming Commission. The state wants the companies to return all profits from these operations and pay damages to affected users - potentially in the billions. Users under 21 would also be barred from accessing the products.

Prediction markets: financial instruments or betting shops?

Prediction markets let users bet money on real-world outcomes - elections, sports results, central bank decisions. The CFTC classifies them as financial derivatives. New York takes a different view: if you accept bets on events without a Gaming Commission license, you are running an illegal gambling operation. That is the core of the state's case against Coinbase and Gemini.

Coinbase and Gemini are two of the largest crypto exchanges in the US. Prediction markets were a secondary product for both - but now that product is pulling them into court.

Polymarket and Kalshi already went through this

New York is not the first regulator to go after prediction markets. Several states tried to block Kalshi in 2025, citing local laws. The CFTC won those cases, arguing federal rules take priority. New York chose a different path: not a flat ban, but a licensing requirement. A small but meaningful legal distinction.

If the court sides with the state, every platform would need separate permits in dozens of jurisdictions. For most players, that means a major restructuring or an exit from the US market altogether.

CFTC backed off - state regulators did not

Under the Trump administration, the CFTC has eased pressure on the crypto sector. New York is not a federal body, though. The state kept its own legal tools and is now using them at full force. For Coinbase - which trades Bitcoin and dozens of other assets and is pushing to become a full-scale financial institution - a loss in New York is a blow to both reputation and business.

A ruling other states will copy

Coinbase is listed on Nasdaq. Any major state lawsuit can move the stock. Gemini is heading toward an IPO and does not need negative headlines right now.

If New York wins, the ruling becomes a template. California, Texas, Illinois - all of them could follow the same path. At that point this stops being one lawsuit and becomes an industry-wide shift for prediction markets across the US.