Coinbase and Kalshi Fail to Freeze State Prediction-Market Crackdowns

Coinbase and Kalshi just lost their first swing at a federal shield. The Second Circuit refused on Nov. 3 to pause state enforcement of gambling laws against their prediction-market businesses, covering Coinbase Financial Markets' Connecticut appeal and Kalshi's appeals in both Connecticut and New York.

A three-judge panel — John M. Walker Jr., Dennis Jacobs and Joseph F. Bianco — heard the three appeals together and ruled the companies simply didn't clear the bar. They said the firms failed to make the showing required for an injunction pending appeal. Crucially, the judges killed the temporary protection without touching the underlying appeals, and offered no factor-by-factor breakdown of their thinking.

The order is not a kill switch. It doesn't force either platform to halt trading, unwind existing positions or block withdrawals. It just leaves event contracts sitting exposed to state enforcers while the appeals grind on. Coinbase's own customer guidance still lists prediction markets as available to U.S. residents everywhere except Nevada and Michigan, with Connecticut and New York squarely inside the stated coverage — and Coinbase says Kalshi runs the markets underneath.

Connecticut has been swinging at sports-event contracts. The state sued Kalshi in August, asking a court to shut down what it calls unlicensed sports wagering, then in September regulators fired off cease-and-desist orders at more platforms, Coinbase included, demanding they stop selling sports-event contracts to Connecticut residents. Coinbase's motion argued Connecticut shouldn't get to apply its own laws to sports-related contracts traded on federally regulated exchanges — the same argument Kalshi made in New York.

New York's fight is broader. Attorney General Letitia James has filed civil petitions against both Coinbase and Kalshi that stretch past sports into election and entertainment or cultural contracts, seeking orders against what she alleges are unlicensed gambling operations plus restitution, disgorgement and penalties. Those are the state's claims and its wish list — not anything the appellate order handed over.

There's a counterweight worth watching. The Defiant previously reported that U.S. District Judge Martha M. Pacold handed the industry a partial win in Illinois on Oct. 2, finding that core contracts on who wins a title game likely qualify as swaps under the Commodity Exchange Act and that Illinois licensing rules likely clash with federal law. The Second Circuit's terse order supplies nothing close to that analysis. Next up: Connecticut officials' response brief in Coinbase's case, due Nov. 20.