Coinbase Explains How New US Tax Rules Could Hurt Gamblers and Boost Prediction Markets

Coinbase believes a major US tax change could significantly alter how gamblers place bets starting in 2026. In its latest outlook, the crypto exchange argues that a provision in President Donald Trump’s “One Big Beautiful Bill Act” may unintentionally push gamblers away from traditional casinos and sportsbooks and toward prediction markets instead.

The law, signed in mid-2025, introduces new limits on how gambling losses can be deducted against winnings, changing the tax math for frequent bettors.

Why Traditional Gamblers Could Face Higher Tax Bills

Under the new rules, gamblers will no longer be able to fully offset losses with winnings when filing taxes. Coinbase warns this could lead to situations where individuals owe taxes on “phantom income,” meaning they may be taxed on gross winnings even if they ultimately lost money overall.

For active bettors, this creates a less favorable tax environment. Even small winning streaks could trigger taxable income, while losses would not be fully recognized, raising effective tax burdens and increasing the cost of traditional gambling.

Prediction Markets Gain a Potential Edge

Coinbase argues that prediction markets could benefit from this shift. Unlike sportsbooks, prediction markets operate using financial contracts similar to derivatives, which may fall under different tax treatment than gambling winnings.

As a result, tax-conscious users might find prediction markets more efficient, especially if they offer clearer reporting and fewer punitive tax outcomes. Coinbase sees this as a structural advantage that could drive broader adoption of event-based trading, covering areas such as sports, elections, and economic outcomes.

Coinbase’s Strategic Interest in the Sector

Coinbase’s stance is closely tied to its own business strategy. The exchange has recently committed to expanding access to prediction markets through a partnership with Kalshi, positioning itself as a gateway for regulated event contracts.

At the same time, Coinbase has taken an aggressive legal stance to protect this expansion. The company is currently suing regulators in Michigan, Illinois, and Connecticut, arguing that prediction markets fall exclusively under federal oversight by the Commodity Futures Trading Commission (CFTC), not state gambling authorities.

A Broader Regulatory and Market Battle

Coinbase maintains that Congress has already granted the CFTC sole authority over prediction markets, making state-level bans or restrictions invalid. These lawsuits reflect a broader struggle over whether prediction markets should be treated as financial instruments or gambling products.

If courts side with Coinbase, prediction markets could gain nationwide clarity just as tax rules make traditional gambling less attractive. That combination, Coinbase suggests, could reshape how Americans speculate on real-world outcomes, not by choice alone, but by economics and regulation.

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