Coinbase and Kalshi have lost a bid to temporarily block state authorities in New York and Connecticut from enforcing gambling regulations against their sports-related prediction market contracts. The US Court of Appeals for the Second Circuit denied the companies' requests for injunctions on November 3, 2026, leaving them without the interim legal protection they sought while their appeals proceed.
The decision is an important development in the dispute over how sports event contracts should be regulated in the United States. However, it does not resolve the central legal question: whether federal commodities law takes precedence over state gambling laws when these platforms offer sports-related contracts.
Second Circuit Rejects Requests for Temporary Protection
The Second Circuit considered separate requests from Coinbase Financial Markets and Kalshi for injunctions pending appeal. The cases were heard together and involved challenges to enforcement actions in New York and Connecticut.
The panel rejected the requests, stating that the appellants had not demonstrated that an injunction pending appeal was warranted. The short order did not provide a detailed explanation of the court's reasoning.
The decision covers three appeals: KalshiEX LLC v. Williams (No. 26-1835), involving New York; KalshiEX LLC v. Cafferelli (No. 26-2239), involving Connecticut; and Coinbase Financial Markets, Inc. v. Tong (No. 26-2297), also involving Connecticut. The three matters were considered in tandem.
What the Ruling Means for Coinbase and Kalshi
The denial means Coinbase and Kalshi did not receive the temporary appellate protection they requested against state enforcement while their legal challenges continue. It does not amount to a final decision on the merits of their appeals.
Importantly, the November 3 order does not itself direct either company to shut down its prediction market services or require customers to close existing positions. It addresses the requests for interim relief, rather than establishing a final outcome for the underlying disputes.
The distinction matters because the companies are still challenging the legal basis for state regulation. The appeals will determine whether their arguments about federal regulatory authority can succeed, but the latest order does not settle that question.
The Legal Dispute Centers on Federal and State Authority
At the heart of the cases is the relationship between the federal Commodity Exchange Act (CEA) and state gambling regulations. Coinbase and Kalshi argue that their sports event contracts fall under the federal commodities framework and that state authorities cannot apply gambling laws to those products.
Their position relies on the role of the Commodity Futures Trading Commission (CFTC), the federal agency responsible for overseeing derivatives markets. The companies contend that federal law gives the CFTC authority over the relevant contracts and limits the ability of individual states to regulate them as sports betting.
State authorities take a different position. New York and Connecticut regulators have argued that sports event contracts offered by prediction market platforms can fall within state gambling laws. Their concerns include the regulation of sports wagering and the protections those laws provide to consumers.
The disagreement therefore extends beyond the companies themselves. It raises a broader question about where federal derivatives oversight ends and state gambling regulation begins.
Earlier Court Decisions Added to the Pressure
The Second Circuit's decision follows earlier setbacks for the companies in lower courts. In New York, a federal district court rejected Kalshi's request for a preliminary injunction in July 2026. In Connecticut, a district court also denied requests for preliminary relief involving Kalshi and Coinbase in August.
Those earlier decisions left the companies exposed to state regulatory action while their legal challenges continued. The latest appellate ruling means they have not secured the temporary protection they sought from the Second Circuit.
The Connecticut proceedings also involved separate claims by Coinbase Financial Markets. The company offers event contracts through its platform and argued that federal law prevents Connecticut officials from applying state gaming regulations to those products. The district court rejected its request for a preliminary injunction.
What Happens Next in the Prediction Market Cases?
The underlying appeals remain unresolved. The Second Circuit's November 3 decision dealt only with the requests for injunctions pending appeal, not the final legal arguments about whether the Commodity Exchange Act preempts state gambling laws.
The outcome of the appeals could have broader implications for prediction market operators offering sports-related contracts across the United States. A ruling on federal preemption could help clarify how state regulators and federally regulated derivatives platforms must interact.
For now, Coinbase and Kalshi have failed to obtain the temporary legal shield they requested in New York and Connecticut. The next significant development will be the court's consideration of the underlying appeals, which will determine whether the companies can establish that federal law limits the states' authority over their sports event contracts.
