Coinbase Financial Markets has lost its request to temporarily stop Michigan officials from enforcing state sports betting laws against its event contracts.
U.S. District Judge Shalina Kumar rejected Coinbase’s request for preliminary relief on Aug. 6.
The decision does not end the case. Coinbase can still challenge Michigan’s position as the lawsuit moves forward.
But for now, Michigan can continue enforcing its sports betting rules against the company.
Coinbase wanted federal law to take priority
The dispute is about sports event contracts offered through prediction markets.
Coinbase sued Michigan Attorney General Dana Nessel after state officials challenged the company’s ability to offer these contracts to Michigan customers.
Coinbase says the contracts are covered by federal commodities law.
More specifically, the company argues that they qualify as swaps under the Commodity Exchange Act. If that is correct, Coinbase says the federal government, rather than individual states, should have control over them.
The contracts are supplied through Kalshi, a federally regulated prediction market.
Coinbase wanted the court to block Michigan from taking action while the larger legal dispute was being decided.
The judge declined to do that.
Judge says Coinbase did not prove its case
Kumar said Coinbase had not shown that it was likely to win its federal preemption argument.
For a preliminary injunction, Coinbase needed to show a strong chance of success on its claims.
The judge was not convinced that sports event contracts automatically qualify as swaps under federal law.
The court also rejected Coinbase’s argument that following both federal derivatives rules and Michigan betting laws would be legally impossible.
Kumar said that higher costs or additional operational problems are not enough to prove that the two sets of rules cannot exist together.
That point is important because the ruling is about preliminary relief. It is not a final decision on every legal question in the case.
Coinbase can still argue its position as the lawsuit continues.
The courts do not agree on prediction markets
The Michigan decision is part of a much larger fight over who should regulate sports prediction contracts.
Federal courts have reached different conclusions.
In April, the Third Circuit backed Kalshi in a case involving New Jersey. The court found that Kalshi had a reasonable chance of showing that its sports contracts were swaps and that federal law could override conflicting state restrictions.
Other courts have taken a different view.
Some federal judges have questioned whether Congress ever intended the Commodity Exchange Act to cover sports betting in this way.
Cases in Michigan, Ohio and other states have produced decisions that have challenged or limited the industry’s argument that federal law automatically blocks state gambling rules.
So there is still no nationwide answer.
CFTC wants federal control
The Commodity Futures Trading Commission has also taken a clear position in the dispute.
CFTC Chairman Michael Selig has said the agency has exclusive authority over federally regulated prediction markets.
The commission has already taken legal action against several states.
In June, the CFTC sued Kentucky after the state moved against federally registered prediction market operators.
The agency has also started proceedings involving Minnesota, Illinois and Rhode Island.
At the same time, the CFTC is working on new rules for event contracts.
A proposal released in June would set out a process for reviewing contracts connected to areas such as gaming, terrorism, assassination and war.
The proposal would also consider whether a contract conflicts with federal or state law or goes against the public interest.
The review process could take up to 90 days.
Why this matters for Coinbase
Coinbase has been expanding beyond its traditional crypto business.
The company now offers access to a wider range of financial products, including event contracts.
But state-by-state restrictions could make that business harder to operate.
For example, a contract could be available to a customer in one state but restricted in another.
Coinbase argues that this would create a fragmented system even though the products are traded through federally regulated markets.
Michigan’s position is different.
State officials argue that sports betting remains within the state’s authority and that federal commodities rules should not simply remove those protections.
The courts now have to decide which side has the stronger legal argument.
The Michigan case is not over
The latest ruling only means Coinbase did not get the temporary protection it wanted.
It does not automatically end the lawsuit.
Coinbase can continue with its claims and could also ask an appeals court to review the decision.
Michigan officials, meanwhile, can continue defending the state’s sports betting laws.
The case could become more important if other federal courts reach different conclusions.
That is already happening.
The Third Circuit has taken a position favorable to Kalshi, while other courts have questioned the same federal preemption argument.
If the split grows, a higher court could eventually be asked to settle the issue.
CFTC rules could change the debate
Court cases are only one part of the story.
The CFTC is also working on its own regulatory framework for prediction markets.
That could give companies and states clearer rules about which event contracts can be offered and how they should be regulated.
But new agency rules will not automatically settle every legal question.
Courts still have to interpret the laws passed by Congress.
For now, the Michigan ruling gives state officials a win.
For Coinbase and the wider prediction market industry, the bigger question remains open: can federally regulated event contracts operate across the US without having to follow each state’s sports betting laws?
The answer may depend on the next court decisions, possible appeals and the CFTC’s upcoming rulemaking.