CFTC Sues New York Over Coinbase, Gemini and Kalshi Prediction Markets

The CFTC sues New York. That’s the headline, and it lands the same week the state’s own attorney general dragged Coinbase and Gemini into court over the exact same product. The U.S. Commodity Futures Trading Commission filed Friday in the Southern District of New York, arguing that prediction market contracts traded on federally registered venues are derivatives, not gambling, and that no state attorney general gets to say otherwise. New York is now the fourth state the agency has hauled into federal court since January. The fight over who polices event contracts has stopped being a polite legal disagreement. It’s a turf war, and Washington just escalated.

Why the CFTC Sues New York This Week

The CFTC sues New York to win one legal point: federal law gives the agency exclusive jurisdiction over commodity futures, options, and swaps on registered exchanges. Prediction markets run on those exchanges. State gambling statutes, the agency argues, are preempted. The complaint asks a federal judge to make that ruling stick.

The agency’s filing leans on the Commodity Exchange Act language directly, quoting that federal law “designates the CFTC as the federal agency with ‘exclusive jurisdiction’ over the regulation of commodity futures, options, and swaps traded on federally regulated exchanges.” Prediction markets such as Kalshi run on designated contract markets registered with the agency, which puts them, in the CFTC’s reading, entirely outside the reach of state gambling statutes. The CFTC sues New York filing asks the federal court to declare state law preempted and stop New York from enforcing its gambling code against any CFTC-registered venue.

Translation for anyone not steeped in administrative law: the CFTC wants a federal judge to tell New York to back off, permanently. The agency is not asking for damages. It’s asking for a wall.

New York’s Case Against Coinbase and Gemini

Three days before the CFTC’s filing, Attorney General Letitia James opened her own front. New York sues Coinbase and Gemini in state court, arguing the two exchanges are running unlicensed sports betting books dressed up as financial contracts. The complaint frames the products in the simplest possible terms: a user pays money, picks a side of a future event, and walks away with more money or none. New York’s position is that this is a wager, full stop, and that calling a wager a “binary option” or an “event contract” does not change what it is.

Coinbase and Gemini both launched prediction market products over the past year, riding a wave of consumer interest that started with the 2024 election cycle and never really cooled off. Sports markets, in particular, have ballooned. New York’s filing accuses both firms of operating without the licenses any other sportsbook in the state has to obtain, and of using the CFTC’s federal designation as cover.

CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets.

37 Attorneys General Push Back in the Kalshi Case

The same Friday the CFTC filed in Manhattan, 37 state attorneys general filed a brief on the other side of the country in a Massachusetts case targeting Kalshi. The coalition, which includes Letitia James and a bipartisan mix of red and blue states, argues that the company’s reading of federal preemption is so broad it would erase a century of state authority over gambling. “Kalshi’s aggressive theory of preemption threatens the States’ longstanding ability to protect their citizens in this area,” the brief warns.

That language matters. It signals that the states are not treating this as a one-off skirmish over a single startup. They are defending the principle that gambling regulation belongs to them, and they intend to litigate it state by state, court by court, until somebody makes them stop. The CFTC is now trying to be that somebody.

Kalshi has been the central battleground for almost two years. The company won a high-profile federal court ruling in 2024 that allowed it to list congressional control contracts. Sports event contracts followed. Then came the cease-and-desist letters from gaming regulators in Nevada, New Jersey, Ohio, and others. New York’s pursuit of Kalshi last year was part of that pattern.

• New York demanded Kalshi shut down its sports markets in 2025
• Massachusetts is currently litigating the same theory in federal court
• Nevada and New Jersey issued cease-and-desist orders earlier
• 37 states have now joined the coalition brief defending state authority

Mike Selig’s Four-Month Sprint

CFTC Chairman Mike Selig was sworn in roughly four months ago, and prediction markets have been the policy issue he has spent the most political capital on. Before New York, the agency under his leadership filed federal suits against Arizona, Connecticut, and Illinois, each one seeking the same outcome: a court order that says the state cannot apply its gambling law to a CFTC-registered exchange.

Four states in four months is not the cadence of a regulator hoping to settle. It’s the cadence of a regulator trying to lock in a precedent before the appellate courts split, before Congress gets nosy, and before another administration changes the math. The CFTC’s litigation strategy looks, from the outside, like an attempt to win the same legal point in as many federal districts as possible at once. If two or three of those rulings go the agency’s way, the question of who regulates event contracts effectively gets answered without Congress ever having to vote on it.

Selig has framed this as a defense of consumer access. State AGs have framed it as federal overreach into a power they have held since the founding. Both can be true. Only one will survive in the case law.

What This Means for Crypto Exchanges and Traders

Answer first: if you trade prediction markets on Coinbase, Gemini, Kalshi, or Polymarket’s regulated U.S. arm, your access in New York is now contingent on a federal judge. Until the Southern District rules on preemption, the products remain live, but the legal cloud is real. Exchanges have to weigh whether to keep New York users active, geofence them, or wait it out.

For Coinbase and Gemini, the CFTC suit is a gift. It puts the federal government on their side of a state enforcement action, which is rarely how these stories go for crypto firms. For Kalshi, the 37-state brief is the bigger threat. A coordinated coalition of attorneys general is the kind of opposition that does not get tired and does not run out of money.

And for traders, the practical risk is volume fragmentation. If New York successfully blocks event contracts and other states follow the Massachusetts brief, liquidity in U.S. prediction markets thins out, spreads widen, and the products become less competitive against offshore alternatives. The irony is hard to miss. State lawsuits aimed at protecting consumers may push those same consumers to platforms with no U.S. oversight at all.

What Happens Next?

The Southern District of New York will set a schedule, and the state will have weeks to file its response. Expect New York to argue that prediction contracts on sports outcomes are not commodities in any meaningful sense, that the CFTC has stretched the term beyond what Congress intended, and that the Tenth Amendment leaves gambling regulation to the states.

The Massachusetts Kalshi case is likely to reach a ruling before the New York federal case does. If the Massachusetts judge sides with the states, the CFTC’s nationwide strategy gets harder. If the judge sides with Kalshi, the agency’s playbook gets validated, and more states will probably end up in court within weeks.

There is a Congress-shaped option sitting on the shelf, too. Lawmakers could write a statute that draws the line cleanly between event contracts and sports betting. Nobody in Washington is rushing to do that. So the courts get to decide, and the next 90 days will tell us a lot about which side wins the framing.

This article is for informational purposes only and does not constitute investment advice. Every investment and trading decision involves risk. Readers should conduct their own research before making any financial decisions.