Coinbase Denied Preliminary Injunction in Michigan Sports Prediction Markets Case

Coinbase Financial Markets lost its bid for preliminary relief in Michigan on Aug. 6, after U.S. District Judge Shalina Kumar refused to block state officials from enforcing sports betting laws against the company's event contracts. The order leaves Coinbase without the injunction it had sought as its legal challenge continues.

Prediction markets let users buy contracts that pay out based on the outcome of real-world events, from elections to sports scores. Once a niche product, they surged into mainstream visibility during recent U.S. election cycles and are now expanding aggressively into sports — putting them on a collision course with state-licensed gaming industries that operate under extensive licensing, tax, and consumer-protection regimes.

Coinbase filed suit against Michigan Attorney General Dana Nessel, contending that event contracts offered through federally regulated prediction markets fall under the Commodity Exchange Act and the Commodity Futures Trading Commission's exclusive jurisdiction. The company aims to allow Michigan customers to access contracts supplied through Kalshi, a CFTC-registered designated contract market that has received federal approval to list sports event contracts.

Judge Rejects Coinbase's Federal Preemption Argument

Kumar concluded that Coinbase had failed to demonstrate a likelihood of success on its federal preemption claims — a prerequisite for preliminary relief. The judge dismissed Coinbase's argument that sports event contracts necessarily qualify as swaps under the Commodity Exchange Act and therefore fall outside Michigan's gambling authority.

The court also rejected Coinbase's contention that simultaneous compliance with federal derivatives law and Michigan's Lawful Sports Betting Act would be impossible. Kumar characterized Coinbase's assertions as "applesauce," noting that higher costs or operational difficulty do not amount to legal impossibility. The ruling addresses only preliminary relief, not a final judgment on the merits.

New: District court judge denies Coinbase motion for a preliminary injunction against Michigan. One of my favorite quotes in a prediction markets case: "Coinbase's averments are, in a word, applesauce." I feel like that's not a line you want to see from a judge. — Dustin Gouker (@DustinGouker) August 7, 2026

Coinbase has argued that state restrictions frustrate Congress's intent to build a federal derivatives regime. Chief Legal Officer Paul Grewal previously stated that state efforts to control prediction markets "stifle innovation and violate the law." This remains Coinbase's position and has not been accepted as a conclusion by the Michigan court.

Federal Courts Remain Divided Over Sports Contracts

The Michigan ruling enters an existing legal split. In April, the Third Circuit affirmed preliminary relief for Kalshi in New Jersey, holding that Kalshi had shown a reasonable probability of succeeding on its claim that sports event contracts are swaps and that federal derivatives law preempts conflicting state restrictions.

Other courts have reached the opposite conclusion. Michigan federal judges have questioned whether Congress intended the Commodity Exchange Act to bring sports wagering within the federal swaps framework. Earlier decisions in Ohio and other jurisdictions have rejected or limited the industry's preemption theory, leaving the legal status unsettled.

As previously reported in New Jersey coverage, former SEC and CFTC Chair Gary Gensler argued that sports prediction contracts should remain outside the federal swap framework. Gaming groups — including state-licensed casinos and sportsbooks that pay significant licensing fees and tax revenue to states — have also urged Congress to preserve state authority over sports wagering rather than allow federally registered platforms to bypass state licensing systems.

CFTC Presses Its Own Federal Authority Claims

The CFTC has taken the opposite institutional stance. Chairman Michael Selig has repeatedly stated that the agency holds exclusive jurisdiction over federally regulated prediction markets. The commission sued Kentucky in June after the state pursued enforcement actions against designated contract markets and has initiated proceedings involving Minnesota, Illinois, and Rhode Island.

The agency is also revising its event contract framework. A June proposal would establish a structured process for determining whether contracts involve gaming, terrorism, assassination, war, or conduct unlawful under federal or state law, and whether they are contrary to the public interest. The proposal includes a 90-day review period.

As crypto.news reported in prediction market coverage, the CFTC's push has expanded beyond individual disputes into formal rulemaking. A separate proposal addresses reporting requirements for certain collateralized event contracts, indicating that federal regulators are constructing a regulatory structure while courts continue to debate state power.

What Comes Next in Coinbase's Michigan Case

The denial means Coinbase will not receive the preliminary shield it requested against Michigan enforcement. It does not resolve every issue in the underlying lawsuit. Coinbase may continue litigating its claims and could seek appellate review of the injunction decision, while Michigan officials may continue defending their authority under state gaming law.

The case also intensifies pressure on higher courts to reconcile conflicting interpretations. The Third Circuit sided with Kalshi on the core swap and preemption questions, while several district courts have disagreed. Coinbase contends that a conflicting appellate ruling elsewhere would deepen the split and increase the likelihood of potential Supreme Court review.

For Coinbase, the stakes extend well beyond Michigan. Its prediction market service operates through Coinbase Financial Markets, a Futures Commission Merchant registered with the CFTC, and the company has been expanding event contracts alongside stocks, crypto, and derivatives offerings. Coinbase argues that state restrictions could create divergent availability rules across the country if federal preemption remains unsettled.

The next major developments will likely include any appeal, merits rulings in Michigan, and appellate decisions in other prediction market cases. The CFTC's rulemaking may influence the debate, but an agency rule cannot resolve statutory questions that courts are already interpreting. For now, Kumar's ruling gives Michigan a procedural victory while leaving the broader national jurisdiction fight unresolved.

Source: CryptoNews