Coinbase says a change in U.S. tax law could reshape how gamblers place their bets, potentially steering more people toward prediction markets instead of traditional sportsbooks and casinos.
In its newly released 2026 outlook report, the cryptocurrency exchange pointed to a provision in the One Big Beautiful Bill Act, signed into law by President Donald Trump in July 2025. Starting in 2026, the rule will cap how much gamblers can deduct in losses against their winnings when filing taxes.
According to Coinbase, the change may leave some bettors paying taxes on income they never truly earned. Even gamblers who end the year with a net loss could owe taxes on small winnings because they can no longer fully offset those gains with losses. The company described this as being taxed on “phantom” income, a scenario that could surprise casual and frequent gamblers alike.
Against that backdrop, Coinbase argues prediction markets could look more appealing. Unlike standard gambling, prediction markets operate through financial contracts that resemble derivatives. These contracts allow users to speculate on the outcome of events, from elections to economic indicators, and may offer more favorable tax treatment depending on how gains and losses are reported.
The company’s stance aligns with its recent business moves. Coinbase has partnered with Kalshi, a regulated prediction market platform, to give its customers access to event-based contracts. Prediction markets have grown in visibility over the past year, drawing interest from traders who see them as a blend of finance and forecasting rather than pure gambling.
Coinbase has also taken a firm position against state-level efforts to restrict these markets. The exchange is currently suing Michigan, Illinois, and Connecticut, seeking court rulings that would limit state authority over prediction markets. Coinbase argues that Congress has already placed oversight of prediction markets under the Commodity Futures Trading Commission, making the CFTC the sole regulator.
State officials, meanwhile, have raised concerns about prediction markets offering contracts tied to sports and other events traditionally regulated as gambling. The legal fight is likely to shape how broadly prediction markets can operate across the United States.
As the new tax rules approach, Coinbase believes the combination of higher tax burdens on traditional gambling and growing access to prediction markets could change bettor behavior. Whether regulators and courts agree will play a key role in determining how this emerging corner of the market develops.
