Coinbase Criticizes CFTC’s Proposed Rules on Prediction Markets

Coinbase, the Nasdaq-listed crypto exchange, has strongly opposed the Commodities Futures Trading Commission’s (CFTC) proposed rules on prediction markets. In a letter to the CFTC Commissioners, Coinbase urged the withdrawal of these rules, arguing that they overstep the commission’s statutory authority and disregard the positive economic contributions of prediction markets.

Paul Grewal, Coinbase’s Chief Legal Officer, stated in the letter, “We firmly believe that this all-or-nothing approach to the treatment of event contracts is not consistent with the promotion of responsible innovation and growth in regulated, transparent markets with appropriate safeguards to protect market integrity and protect customers.” This highlights Coinbase’s concern that the CFTC’s proposal may stifle innovation rather than support it.

Objections to Broad Definitions and Unfair Restrictions

In May, the CFTC proposed new regulations defining “gaming” as betting on outcomes of events like political contests, awards, or sports. The proposal garnered support from three Democratic commissioners who emphasized concerns about market integrity and the CFTC’s regulatory role. However, Coinbase criticized the broad definition of “gaming,” arguing it unfairly categorizes valuable event contracts as gaming without evaluating their potential public benefits.

Coinbase pointed out that the proposed rule could misclassify contracts as “gaming” even when they do not fit the common understanding of the term. The company argued that this is inconsistent with legislative history, which does not suggest that gaming should extend beyond sporting events. As an example, Coinbase mentioned a vendor hedging the costs of printing t-shirts for a championship team by betting on the team’s loss. This, they argue, is a form of market speculation, not gambling.

Moreover, Coinbase criticized the proposal for equating speculation with gaming. They noted that few would agree that elections or professional awards like the Nobel Prizes or Academy Awards should be considered games, yet the proposal includes such examples. Additionally, the CFTC’s proposed rules would ban contracts related to war, terrorism, and assassination, further broadening the scope of what they consider “gaming.”