Coinbase Loses Michigan Prediction Markets Round as Judge Calls Its Case ‘Applesauce’

A federal judge refused to shield the Kalshi sports contracts Coinbase sells from Michigan’s betting law, quoted the Third Circuit’s opposite conclusion, and declined to follow it.

Coinbase cannot stop Michigan from enforcing its sports betting law against the event contracts it offers, a federal judge ruled on Thursday, in an opinion that reduced the exchange’s central legal theory to a single word.

“Coinbase’s averments are, in a word, applesauce,” Judge Shalina D. Kumar of the Eastern District of Michigan wrote in the 47-page opinion, throwing out the argument that federal commodities law leaves states no room to treat the contracts as bets.

Coinbase sued Michigan, Illinois and Connecticut in December after gaming regulators in all three moved against event contracts, and asked the Michigan court to freeze enforcement while the case runs. Its theory is that the Commodity Exchange Act gives the Commodity Futures Trading Commission, which is only now writing its first formal rule for event contracts, exclusive jurisdiction over the Kalshi markets Coinbase routes to customers, leaving Michigan’s Lawful Sports Betting Act nothing to enforce.

Kumar rejected all three versions of that argument. She held: “In sum, Coinbase fails to show that sports event contracts qualify as swaps under the CEA.” She read the law’s “exclusive jurisdiction” clause as a grant rather than express preemption, and found its savings clauses pointing the other way, since their presence “usually signals that Congress does not mean to preempt the [whole] field.”

A District Judge Breaks With the Third Circuit

That puts Kumar against the Third Circuit, whose April decision she quoted and then declined to follow. The appeals court had found a plain reading of the statute put Kalshi’s sports contracts “comfortably within the statutory definition” of a swap. Kumar lined up instead with federal courts in Nevada, southern Ohio and western Michigan, and put the blame on the drafting. “This impenetrable drafting leaves open the question,” she wrote.

Cost Is Not Impossibility

Coinbase had also argued that obeying Michigan and the CFTC at the same time is impossible. “It is not impossible for Coinbase to comply with the LSBA simply because it is costly and challenging,” Kumar wrote in the order. “Expensive does not mean impossible.”

The court dismissed the Michigan Gaming Control Board itself, finding it “is immune from suit,” and left the case standing against the board’s directors and Attorney General Dana Nessel. Coinbase’s parallel suits in Illinois and Connecticut are still open, and the Nevada Gaming Control Board separately sued the exchange in state court in February over the same product.

Chief legal officer Paul Grewal said on X when Coinbase filed the three suits in December that state efforts to block prediction markets “stifle innovation and violate the law.”

Related Listen: DEX in the City: How Kalshi’s Rough Week Became a Federal Fight for Prediction Markets