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

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

According to cryptocurrency media outlet BeInCrypto on April 21 (local time), the New York Attorney General's Office filed a lawsuit against Coinbase Financial Markets and Gemini Titan for violating state law. This is New York State's first legal action against a prediction market operator holding a federal license. 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. In particular, unauthorized sports gambling advertising and promotional activities were identified as key violations.

New York 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 firm stance against unauthorized gambling activities.

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

This lawsuit is considered a case where the state government's gambling regulatory authority and the federal government's financial oversight authority directly clash. The CFTC had already filed lawsuits on April 3 against some states, including Connecticut and Illinois, regarding prediction market regulatory authority. Subsequently, on April 7, a federal appeals court ruled that New Jersey could not apply gambling laws to Kalshi, emphasizing 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 predict that the power struggle between states and the federal government is likely to continue up to the Supreme Court.

Currently, in the US judicial system, there is a "circuit split" where judgments regarding prediction market regulations differ among lower courts. This is a typical development that usually leads to a final decision 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 opposing New York State's action, calling it excessive regulation that hinders innovation. Coinbase and Gemini are likely to maintain their position that they are providing legitimate services based on federal licenses. If the struggle for dominance between regulatory authorities prolongs, business uncertainties for companies are expected to further expand.

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