Coinbase Global Inc (NASDAQ:COIN) shed around $4 billion in market value after New York attorney general Letitia James filed a lawsuit accusing the crypto exchange's prediction markets operation of being an illegal gambling business.
New York is seeking at least $2.2 billion in damages from Coinbase and a further $1.2 billion from Gemini, the exchange founded by brothers Cameron and Tyler Winklevoss, which faces an identical claim.
The lawsuits argue that both platforms have been offering what amounts to unlicensed wagering on sports, elections and other events without obtaining licences from the state Gaming Commission, and allowing users as young as 18 to participate when state law sets the minimum gambling age at 21.
Prediction markets allow users to trade contracts based on the outcome of real-world events, with proponents arguing they function as federally regulated derivatives rather than gambling products.
Coinbase chief legal officer Paul Grewal pushed back, saying prediction markets are "federally regulated national exchanges" and that the company would continue to fight for federal oversight of the markets.
The lawsuit lands at a difficult moment for Coinbase, which reports first-quarter earnings on 7 May and has seen its stock fall around 17% this year, with prediction markets representing one of its most prominent remaining growth narratives.
New York's action is the latest in a widening legal battle, with numerous states arguing that sports-related prediction market contracts fall under state gambling law, while platforms contend they are swap contracts subject exclusively to federal oversight by the Commodity Futures Trading Commission.