Key Highlights
- Coinbase Financial Markets asked the Second Circuit to reverse a lower court ruling that denied its request to block Connecticut enforcement.
- Coinbase argues its sports event contracts are swaps under the Commodity Exchange Act and fall under the CFTC’s exclusive jurisdiction.
- Connecticut argues the contracts are sports wagers subject to state gambling laws.
Crypto exchange Coinbase has appealed a Connecticut federal court ruling over the state’s attempt to regulate sports event contracts offered through its platform under gambling laws.
In an October 8 post on X, Coinbase lawyer Molly Abraham said the company had filed its opening brief with the Second Circuit. Coinbase argues that the contracts fall under the Commodity Exchange Act (CEA) and that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over them. Connecticut maintains that the products are sports wagers subject to state regulation.
Coinbase appeals Connecticut court ruling
Coinbase Financial Markets, a CFTC-registered futures commission merchant, is challenging a federal district court’s August 10 decision denying its request for a preliminary injunction.
Coinbase filed its notice of appeal on August 14, and the Second Circuit formally opened the case on August 17 under Coinbase Financial Markets, Inc. v. Tong, No. 26-2297.
The district court found that Coinbase had not shown a likelihood of success in establishing that the sports-event contracts offered through Coinbase were “swaps” under the CEA or that Connecticut’s gambling laws were preempted by federal law.
Coinbase is asking the Second Circuit to reverse that decision.
Coinbase says contracts fall under CFTC authority
The appeal centers on whether Coinbase’s sports event contracts qualify as swaps under the CEA. Coinbase argues that the CEA covers contracts tied to events or contingencies with financial, economic, or commercial consequences. Coinbase points to economic exposure linked to sporting events, including merchandise sales, hotel activity, and team revenues.
Coinbase also disputes the distinction between a sporting event and its outcome, arguing that the CEA does not exclude a contract simply because its payout depends on a sports result.
If the contracts qualify as swaps traded through a federally regulated exchange, Coinbase argues that federal commodities law preempts Connecticut’s gambling regulations.
Coinbase distinguishes contracts from sportsbook bets
Coinbase argues that treating its exchange-traded contracts as swaps would not bring traditional sportsbooks under CFTC regulation.
The company says sportsbook bets involve a customer and a sportsbook, while its event contracts are traded between counterparties through a CFTC-registered exchange.
Under Coinbase’s argument, states would retain authority over traditional sportsbook gambling even if the Second Circuit accepts its interpretation of the CEA.
Courts remain divided over sports contracts
The Connecticut ruling is part of a wider dispute over whether sports event contracts fall under federal commodities law or state gambling regulations.
On September 25, the Sixth Circuit held that Kalshi’s sports-event contracts were not swaps and that the CEA did not preempt gambling laws in Ohio and Tennessee.
Other courts have reached different conclusions in disputes involving prediction-market contracts, leaving the boundary between federally regulated event contracts and state-regulated sports wagering unresolved.
A separate dispute over state regulation of prediction markets has also reached the U.S. Supreme Court through a Kalshi petition, although the Court has not granted review.
Connecticut dispute involves Kalshi-listed contracts
Coinbase offers event contracts through KalshiEX, a CFTC-registered exchange, including contracts tied to sporting events.
Connecticut regulators have sought to restrict sports prediction-market activity in the state, arguing that the products constitute unlicensed gambling.
The state has separately challenged Kalshi’s sports contracts. A Connecticut federal court rejected Kalshi’s request for preliminary relief in August.
Coinbase’s litigation raises similar federal-preemption questions but involves Coinbase’s role as an intermediary for customers trading the contracts.
Coinbase faces similar disputes in other states
The Connecticut appeal is part of a broader dispute between prediction-market operators and state regulators.
Coinbase has faced similar challenges in other jurisdictions, including New York and Michigan, over whether CFTC-regulated prediction-market products can be subject to state gambling laws.
In Michigan, Coinbase has agreed to stop offering new sports-related event contracts by October 10 and close remaining customer positions by the same deadline. Michigan will hold off on enforcement while related appeals continue.
The Michigan arrangement is separate from the Connecticut litigation.
Second circuit appeal remains pending
The Second Circuit appeal is now pending, with Coinbase seeking to overturn the Connecticut district court’s preliminary-injunction ruling.
The case could provide another appellate ruling on the boundary between federally regulated prediction-market contracts and state gambling laws.
For now, Coinbase’s federal-preemption argument and Connecticut’s position that the contracts are sports wagers remain contested, with the Second Circuit yet to rule.
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