Appeals Court Denies Kalshi and Coinbase Emergency Relief

The US Second Circuit Court of Appeals has handed Kalshi and Coinbase another legal setback in their fight against state-level regulations. In its November 3 ruling, the court denied the companies' requests to temporarily stop New York and Connecticut officials from applying gambling laws to contracts tied to sporting events.

A panel of three judges did not issue an injunction while the cases move through the appeals process. In a brief two-page ruling, the court said the companies had not shown sufficient grounds for temporary relief, and it did not provide a detailed explanation.

At the heart of the dispute is whether prediction market contracts are subject to federal derivatives law or state gambling laws. Kalshi and Coinbase argue that their sports products are "swaps" under the Commodity Exchange Act. In that case, they contend, the trades would be overseen by the Commodity Futures Trading Commission, and states would be barred from enforcing their gambling laws. New York and Connecticut, however, view these contracts as equivalent to unlicensed sports betting and say that authority to regulate gambling rests with them.

The ruling does not require the companies to stop trading or close their existing positions. However, both platforms must continue their legal defenses without temporary protection. New York sued Kalshi in July and is seeking $36 billion in potential damages. Connecticut, meanwhile, began a separate enforcement process against Kalshi in August, and Connecticut Attorney General William Tong filed a case against Coinbase. Coinbase's prediction market business generates more than $200 million in annual revenue.

Federal appeals courts have reached conflicting decisions on the issue. The Third Circuit ruled in favor of Kalshi in the New Jersey dispute, while the Sixth and Ninth Circuits sided with state regulators. Kalshi also faced problems in Nevada. In July, the company agreed to block Nevada residents' access to its sports, election and entertainment contracts after claims that it kept offering restricted products despite a court ruling. However, in February a federal judge in Tennessee ruled that the company's sports contracts are swaps under the CEA, and the platform was able to continue operating in that state.