If you wanted proof that crypto’s biggest legal battles are no longer about whether Bitcoin is a security, this is it. On Tuesday, New York Attorney General Letitia James sued both Coinbase and Gemini in state court, calling their prediction market platforms “illegal gambling operations” that are putting young people at risk and dodging taxes that licensed casinos have to pay.
New York Attorney General Letitia James sued Coinbase Financial Markets and Gemini Titan for illegally running gambling operations in New York through their “prediction market” platforms. Both Coinbase and Gemini offer users the ability to bet on events, including sports, entertainment, and elections, in violation of New York laws.
This is not a cease-and-desist letter. These are full lawsuits filed in Manhattan state court, seeking fines, forfeiture of illegal profits, and restitution to customers. If James wins, it could reshape how prediction markets operate across the entire United States.
What the Lawsuits Say
The core argument is simple: prediction markets are gambling. When you let someone bet money on whether the Knicks will cover a 6.5-point spread, that is not a “financial contract” or an “event derivative.” It is a sports bet. And in New York, you need a licence from the State Gaming Commission to offer sports betting.
According to the lawsuit, Coinbase offered users the ability to wager on whether the New York Knicks would win a basketball game by over 6.5 points, who would win the Super Bowl, or college basketball games. Gemini offered users the ability to wager on whether the New York Mets would win a baseball game by more than 1.5 runs.
Neither company has a gaming licence. Neither is paying the roughly 51% tax on gross revenues that licensed mobile sportsbooks in New York are required to pay. That tax revenue funds public schools, youth sports programmes, and problem gambling education. By operating without licences, Coinbase and Gemini are essentially running untaxed casinos, according to James.
These illegal operations expose New Yorkers, including those under the legal gambling age of 21, to serious financial and personal risk. Attorney General James is seeking court orders requiring Coinbase and Gemini to pay fines, forfeit illegal profits, and pay restitution to customers.
The Age Problem
The age issue could be the most damaging detail in the entire case. In New York, you have to be 21 to place a mobile sports bet. Both Coinbase and Gemini allow users as young as 18 to access their prediction markets.
The lawsuits also allege that Coinbase and Gemini allow users as young as 18, while state law prohibits wagering by anyone under 21.
James specifically called out the risk to young people, citing NIH research showing that early exposure to gambling increases the likelihood of depression, anxiety, and financial stress. That framing turns this from a regulatory technicality into a public health argument, which is much harder for Coinbase and Gemini to fight in the court of public opinion.
Why This Matters Beyond New York
Prediction markets have become one of the hottest growth areas in crypto. Polymarket exploded during the 2024 presidential election. Kalshi won a landmark court battle against the CFTC to offer political event contracts. Coinbase and Robinhood both launched prediction market products in 2025, betting that the category would become a major revenue driver as traditional crypto trading volumes slowed.
Both companies began as cryptocurrency trading platforms before branching into the prediction space, which has been dominated by Kalshi and Polymarket.
The problem is that prediction markets sit in a legal grey zone. At the federal level, the CFTC has approved certain event contracts as derivatives. At the state level, attorneys general can argue those same contracts are gambling. Kalshi is already fighting a separate case against the New York Gaming Commission over this exact question. James’s lawsuits against Coinbase and Gemini open a second front in the same war.
If New York wins, other states could follow. California, Illinois, and Texas all have strong gambling regulators who could make similar arguments. The prediction market business that Wall Street analysts were calling a “secret weapon” for Coinbase and Robinhood’s growth could suddenly face a patchwork of state-level gambling lawsuits that makes it impossible to operate nationally without gaming licences.
What Coinbase and Gemini Will Argue
Neither company has responded publicly in detail yet. But the industry’s defence is predictable: prediction markets are federally regulated derivatives, not gambling. The CFTC has jurisdiction. State gambling laws do not apply to event contracts that trade on registered exchanges or through licensed intermediaries.
That argument worked for Kalshi at the federal level. Whether it works in New York state court, in front of a judge interpreting New York’s gambling statute, is a very different question. James has a track record of winning fights against crypto companies. She sued Tether and Bitfinex in 2021 and won an $18.5 million settlement. She does not file cases she does not think she can win.
For Coinbase shareholders, the timing is rough. The stock dropped over 6% on Tuesday, already under pressure from the Warsh hearing and stalled Iran talks. A prolonged legal fight over prediction markets adds another layer of uncertainty to a company that was supposed to be entering a period of regulatory clarity under the current administration.
The bottom line: prediction markets are not going away. But the idea that crypto companies can offer them nationwide without gaming licences just took a serious hit.
