Late on Wednesday, Coinbase Global (NASDAQ: COIN) filed a lawsuit of its own, suing the attorney general and the regulator in response to a lawsuit brought by the Nevada Gaming Control Board (NGCB).

The massive cryptocurrency brokerage, which just joined the prediction markets business, sued in federal court on Wednesday, alleging that Nevada is unfairly using its gaming laws to bar the company from providing event contracts in the state. Coinbase, one of the most recent players in the yes/no derivatives market, has brought similar lawsuits against authorities in Michigan, Illinois, and Connecticut following civil enforcement actions from those states.

Nevada claims in its lawsuit filed Tuesday that Coinbase's sports derivatives meet the state's requirements for sports betting since they are predicated on the results of athletic events and "other events for which the outcome is uncertain."

"Coinbase’s event contracts are wagers,” according to the Nevada suit. “A user spends a sum of money to buy an event contract on an outcome of an event and receives a payout if the outcome occurs and not if the outcome does not occur.”

Through a collaboration with Kalshi, California-based Coinbase provides event contracts on its platform.

Coinbase Supports Federal Preemption

In its battle against Nevada, Coinbase is relying on federal preemption, a legal precedent that states federal regulations take precedence over state ones, as partner Kalshi and other prediction market operators have done. At the heart of that argument is the Commodities Exchange Act (CEA).

“Nevada’s enforcement of its state laws is preempted several times over,” according to the Coinbase suit. “The CEA’s grant of ‘exclusive jurisdiction’ to the Commodities Futures Trading Commission (CFTC) over event contracts traded on designated clearing markets (DCMs) forecloses any state claims. And pursuant to the CEA’s mandate, the CFTC has constructed a comprehensive regulatory regime to oversee both event-contract trading and the entities that facilitate these transactions.”

Although the federal preemption argument is sound, prediction market operators have not benefited from it and are suffering losses in the several states where they are being challenged in court. Nevertheless, Coinbase is taking a chance in Nevada, emphasizing that it is a federally regulated business.

“Permitting States like Nevada to encroach on the CFTC’s jurisdiction would frustrate Congress’s efforts to guarantee nationwide uniformity in the futures market by subjecting companies like Coinbase to state laws that are fundamentally inconsistent with federal law requirements,” the crypto broker adds in its legal complaint. “Federal law leaves no room for concurrent state regulation in this field.”

Nevada Is a Difficult Prediction Market Territory

Nevada has taken a strong stance against prediction markets and those companies' attempts to offer sports derivatives in the state. Nevada is home to Las Vegas and the most developed regulated sports betting market in the United States. There, regulators and gaming organizations have successfully sued prediction firms.

For instance, US District Judge Andrew Gordon said in November of last year that Kalshi's contracts for sporting events are effectively gambling. Some other event contract exchanges' sports services were removed from the state as a result of that verdict. Kalshi rival Polymarket was the target of a civil enforcement action last month from the NGCB, which claimed that the company's sports derivatives were similar to sports betting and may jeopardize the state's gaming-based economy.

“Nevada’s public policy, as expressed by the Legislature, is that the gaming industry is vitally important to the economy of the state and the general welfare of the inhabitants and therefore must be licensed, controlled, and assisted to protect the public health, safety, morals, good order, and general welfare of the inhabitants of the State,” said the regulator.