Coinbase has officially stated to the Commodity Futures Trading Commission (CFTC) that prediction markets should be regulated as derivatives under federal law. They believe the CFTC should continue to oversee these markets.
The company cautioned that allowing each state to create its own regulations for these markets could lead to the same confusing and disorganized situation that federal regulations were originally designed to fix.
Federal Jurisdiction and Economic Utility
Coinbase’s Chief Policy Officer, Faryar Shirzad, shared the company’s stance on X after submitting a document. He explained that contracts based on real-world events aren’t a new concept, as the CFTC has been regulating similar financial products for many years.
As an analyst, I see these financial instruments as tools that pull together various data points to establish pricing, effectively allowing businesses and individuals to manage risk – much like traditional futures contracts. The intention behind federal oversight, as Congress outlined, was to prevent a patchwork of differing state regulations. They specifically wanted to avoid the ‘fragmented state-by-state intervention’ and the ‘regulatory conflict’ that would inevitably arise in markets operating across state lines.
The letter points to the widespread disruption predicted by lawmakers in 1974 if states had conflicting rules for futures trading.
Coinbase admits the CFTC has authority to oversee certain activities, as the agency is already empowered to ban contracts that could harm the public. This includes agreements prone to manipulation or those with potentially dangerous consequences.
However, the company maintained this authority was intended for resolving issues with individual contracts, not for eliminating an entire group of them, which the letter had defined as beneficial to the public.
A recent study by the Federal Reserve found that prediction markets are just as accurate – and sometimes even better – at forecasting than traditional methods, like the New York Fed’s surveys.
A Call for Clarity on Manipulation and Public Interest
Coinbase’s response to the CFTC largely focused on how the agency should decide if a contract harms the public. The crypto company specifically referenced CFTC Rule 40.11, which outlines the conditions under which the agency can declare a contract detrimental to the public interest.
As an analyst, I’ve been following the debate around this rule closely. Coinbase has rightly pointed out that it’s often been misinterpreted as a complete prohibition on certain types of contracts. However, the law itself isn’t a simple ban. It actually requires a two-part assessment. First, you have to determine if a contract fits into one of the specific categories outlined in the rule – things like terrorism, assassination, or gambling. Then, *separately*, you have to evaluate whether that particular contract is actually harmful to the public interest. It’s not an automatic disqualification just because it falls into one of those categories.
The company is now asking for a clearer rule that outlines the necessary two-step procedure. They also suggest updating the CFTC’s instructions on how exchanges can prove a contract isn’t easily manipulated.
This legal filing arrives amidst growing disputes over prediction markets. Just last month, New York’s attorney general sued Coinbase regarding its offerings. Coinbase, in turn, had previously sued Illinois, Michigan, and Connecticut in December 2025 after those states attempted to close down its prediction markets, classifying them as gambling.
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2026-05-05 00:28