According to ReadWrite, Coinbase is acquiring the prediction markets startup The Clearing Company. The deal, announced shortly after Coinbase rolled out its own prediction markets feature, is expected to close in January 2025. Coinbase aims to use the acquisition to scale these markets as part of its vision for an “Everything Exchange.” The Clearing Company’s founder, Toni Gemayel, and his team will join Coinbase to help build regulated, onchain markets for events like elections and sports. The company sees a major opportunity to offer these contracts to its millions of global users alongside their crypto, stocks, and cash. However, CEO Brian Armstrong recently highlighted a potential concern when he used buzzwords from prediction markets on an earnings call, influencing an $84,000 betting market.
Coinbase Bets on Betting
So, Coinbase wants to be your one-stop shop for… well, everything financial. Crypto, stocks, derivatives, and now, bets on real-world events. The logic is straightforward: if you’re already checking your portfolio for your Bitcoin and your Tesla stock, why not also check your position on who wins the next election or whether the Fed will cut rates? It’s about keeping users glued to the Coinbase app for all their speculative needs. Acquiring The Clearing Company gives them a team with specific expertise in building and, crucially, clearing these markets, which is the complex back-end process of settling all those bets. This isn’t a side project; it’s a core part of their “Everything Exchange” pitch.
The Regulatory Tightrope
Here’s the thing, though. Prediction markets exist in a legal gray area in many jurisdictions, often skirting close to gambling laws. Coinbase is smartly emphasizing the “regulated” angle, noting that its futures and swaps are offered through its CFTC-registered entity, Coinbase Financial Markets. This acquisition seems like a move to bake that regulatory compliance right into the product’s DNA from the start. But it’s a tightrope walk. Getting approval for event-based contracts that aren’t tied to a traditional financial instrument is tough. They’re basically asking regulators to bless what looks, to the average person, a lot like sports betting or election wagering, but on a financial platform. That’s a big ask.
The Manipulation Problem
And then there’s the Brian Armstrong anecdote. It’s a perfect, if accidental, case study. By casually repeating buzzwords he knew were being bet on, he directly moved an $84,000 market. Now, if a CEO’s offhand comment can do that, what about coordinated disinformation? Or a well-funded actor trying to sway a political market? Prediction markets are theoretically great at aggregating collective wisdom, but they’re horrifically vulnerable to manipulation and “cheap talk.” This isn’t just a tech problem; it’s a fundamental integrity problem. Can Coinbase’s infrastructure prevent this better than platforms like Polymarket? That’s the billion-dollar question. If users can’t trust that the market reflects genuine sentiment and not just noise or manipulation, the whole product falls apart.
A Gamble on the Future
Look, the potential is massive. Folding prediction markets into a mainstream financial app could democratize them in a way we haven’t seen. But this is a high-stakes gamble for Coinbase. They’re not just buying a company; they’re buying a heap of technical, regulatory, and ethical challenges. They’re betting they can thread the needle: be fun and engaging enough to attract users, but serious and compliant enough to satisfy regulators. And they have to build systems robust enough to withstand bad actors. Basically, they’re trying to turn what’s often seen as an internet novelty into a legitimate asset class. I think it’s one of the most ambitious, and riskiest, plays they’ve made. We’ll see by next January if their bet pays off.
