---
title: "States keep a free hand against Coinbase's $200 million prediction market line"
description: "The Second Circuit refused on November 3 to pause state gambling enforcement against Coinbase's event contracts, five days after management credited the line with offsetting a drop in crypto trading and one day after Morgan Stanley halved its price target to $120."
publisher: "The Inference"
section: "Economy"
published: 2026-11-07T15:16:16.364Z
modified: 2026-11-07T15:16:16.364Z
canonical: https://theinference.org/article/states-keep-a-free-hand-against-coinbase-s-200-million-prediction-market-line
language: en
keywords: "Coinbase, Prediction Markets, Courts, Crypto Regulation, Analyst Ratings"
---

# States keep a free hand against Coinbase's $200 million prediction market line

> The Second Circuit refused on November 3 to pause state gambling enforcement against Coinbase's event contracts, five days after management credited the line with offsetting a drop in crypto trading and one day after Morgan Stanley halved its price target to $120.

## A two-page order keeps state regulators on the field

A three-judge panel of the Second Circuit, the federal appeals court in New York, refused on November 3, 2026, to pause state gambling enforcement against [Coinbase](https://theinference.org/markets/companies/coinbase)'s prediction markets while the company appeals [1][3].

These are event contracts, wagers that pay out on real-world outcomes, and [the two-page order](https://www.legalsportsreport.com/285717/second-circuit-allows-ny-ct-to-enforce-laws-against-kalshi-coinbase/) said only that Coinbase and the prediction-market operator [Kalshi](https://theinference.org/markets/companies/kalshi) "have failed to make the required showing that an injunction pending appeal is warranted" [1][3]. Left undecided is whether the Commodity Exchange Act, the federal derivatives statute, keeps such contracts under the Commodity Futures Trading Commission rather than state gambling regulators [1][3].

Connecticut Attorney General William Tong is Coinbase's opponent in the appeal; New York Attorney General Letitia James has sued Coinbase, Kalshi, Gemini Prediction and Polymarket separately [2]. Gemini Prediction, ProphetX and the brokerage WeBull pulled their sports contracts from Connecticut after September cease-and-desist letters; Coinbase stayed and fought, and now fights without cover [2]. The circuits are split on its argument: the Third Circuit sided with Kalshi against New Jersey, the Sixth and Ninth with state regulators [1].

## The growth line management just leaned on

The refusal landed five days after management leaned on exactly that line. On October 29, with third-quarter results, Coinbase said prediction markets, launched in February, crossed $200 million of annualized run-rate revenue, offsetting a 10% sequential drop in crypto spot volume [3][4]. Revenue held flat with the June quarter at $1.22 billion, still 35% below a year earlier, and the quarter's $719 million profit rested on crypto investment gains while operations earned $31 million, [a split our November 3 coverage unpacked](https://theinference.org/article/coinbase-s-718-7-million-profit-includes-715-million-of-crypto-gains-120-and-240-targets-are-one-bet) [4][5].

[As we reported on November 5](https://theinference.org/article/robinhood-s-173-million-event-contract-line-bigger-than-equities-is-being-shut-off-state-by-state), [Robinhood](https://theinference.org/markets/companies/robinhood)'s event-contract line took in $173 million in a quarter, more than six times a year earlier, and state regulators are now switching that category off door by door [7]. Prediction markets are Coinbase's copy of the same product, and the court just declined to shield it.

*Chart: **Coinbase revenue has fallen year over year for four straight quarters** Coinbase quarterly total revenue from Q2 2024 to Q3 2026, four consecutive year-over-year declines*

*Quarterly total revenue, US$ billions, from Coinbase's SEC filings; annotation is management's figure from the October 29 earnings call [8]*

## Morgan Stanley halves its target; 26 of 41 analysts disagree

On November 2, [Morgan Stanley](https://theinference.org/markets/companies/morgan-stanley) analyst Michael Cyprys cut Coinbase to Underweight, a sell rating, from Equal Weight, and [halved his price target to $120 from $258](https://cointelegraph.com/news/morgan-stanley-cuts-coinbase-target-to-120-as-earnings-recovery-outlook-weakens) [5][6]. The $120 call is one side of the bet [our November 3 piece](https://theinference.org/article/coinbase-s-718-7-million-profit-includes-715-million-of-crypto-gains-120-and-240-targets-are-one-bet) weighed against a $240 bull case [6]. He wrote that "confidence in the earnings recovery has deteriorated," and cut his 2027 revenue forecast by 28% to $6.4 billion and his 2027 EBITDA estimate by 47% [6].

October's trading pace, chilled by the $6.3 billion hack at the exchange [Binance](https://theinference.org/markets/companies/binance), points to roughly $607 million of fourth-quarter transaction revenue against the $685 million analysts expect [6]. Sell-side analysts are split the way the circuits are: 26 of 41 still rate the stock a buy, and brokerages BTIG and H.C [6][7]. Wainwright argue Coinbase gains trading share from Binance's collapse [6][7].

The stock is [down 57.8% over twelve months](https://www.trefis.com/stock/coin/articles/623594/is-coinbase-stock-a-buy-right-now/2026-11-07) and trades at 6.3 times sales on a twelve-month operating margin of 5.7%, against 28.3% a year earlier; no source quantifies how much of that multiple rests on prediction markets surviving state enforcement [4].

## Three dated markers will settle the bet

Three readings will price that unknown: the Second Circuit's ruling on the merits of preemption, which the November 3 order expressly left open [1][3]; remand orders that could return the state suits to state court, where Massachusetts, Michigan and Nevada have already banned sports event contracts and Ohio and Tennessee could follow [1]; and fourth-quarter results, due February 2027, against $1.78 billion of revenue a year earlier [4]. Coinbase's second revenue engine is running; the court just declined to shield it from being shut down state by state.

## Takeaway

The Second Circuit let state gambling enforcement proceed against Coinbase's prediction markets while it appeals, leaving a $200 million revenue line unprotected just as Morgan Stanley halves its target.

## Sources

1. [Legal Sports Report, "Second Circuit Allows NY, CT To Enforce Laws Against Kalshi, Coinbase", 4 November 2026](https://www.legalsportsreport.com/285717/second-circuit-allows-ny-ct-to-enforce-laws-against-kalshi-coinbase/)
2. [DeFi Rate, "Second Circuit Denies Coinbase, Kalshi Temporary Injunctions in Connecticut, New York Cases", 4 November 2026](https://defirate.com/news/second-circuit-denies-coinbase-kalshi-temporary-injunctions-in-connecticut-new-york-cases/)
3. [Unchained via Yahoo Finance, "Second Circuit Won't Pause New York, Connecticut Actions Against Kalshi and Coinbase", 4 November 2026](https://finance.yahoo.com/markets/crypto/articles/second-circuit-won-t-pause-143223040.html)
4. [Trefis, "Is Coinbase Stock A Buy Right Now?", 7 November 2026](https://www.trefis.com/stock/coin/articles/623594/is-coinbase-stock-a-buy-right-now/2026-11-07)
5. [Cointelegraph, "Coinbase hit with 50% price target cut as post-earnings rout deepens", 2 November 2026](https://cointelegraph.com/news/morgan-stanley-cuts-coinbase-target-to-120-as-earnings-recovery-outlook-weakens)
6. [Quartz, "Morgan Stanley is downgrading Coinbase stock and cutting its price target by more than half", 6 November 2026](https://qz.com/morgan-stanley-downgrades-coinbase-price-target-cut-110626)
7. [TIKR via Yahoo Finance, "Coinbase Falls 4% as Morgan Stanley Downgrades, Says 'Confidence in the Earnings Recovery Has Deteriorated'", 3 November 2026](https://finance.yahoo.com/markets/stocks/articles/coinbase-falls-4-morgan-stanley-173009005.html)
8. [Coinbase, quarterly figures from its SEC filings, retrieved 7 November 2026](https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001679788)


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States keep a free hand against Coinbase's $200 million prediction market line — The Inference. Canonical: https://theinference.org/article/states-keep-a-free-hand-against-coinbase-s-200-million-prediction-market-line