Prediction Markets Set for Explosive Growth
Prediction markets are on the verge of a major transformation, with a new report from Eilers & Krejcik projecting that annual trading volume could reach a staggering trillion dollars by the end of this decade. This forecast marks a turning point for the industry, which has rapidly evolved from niche online platforms to a central part of the global financial landscape. The report highlights that sports prediction markets will be the main driver, expected to account for about 44% of all trading volume in the coming years.
What Are Prediction Markets?
Prediction markets are online platforms where users can wager on the outcomes of real-world events. These events range from sports games and political elections to economic indicators and cultural trends. The core idea is simple: participants buy and sell contracts based on their beliefs about future outcomes, with prices reflecting the collective wisdom of the crowd. This mechanism allows prediction markets to serve as informal barometers of public sentiment and, increasingly, as tools for forecasting.
Major Players and New Entrants
The prediction market space is now attracting some of the biggest names in finance and technology. Platforms like Polymarket and Kalshi have seen a surge in popularity, prompting traditional sportsbooks and financial firms to enter the market. Robinhood recently introduced features that let users trade NFL parlays and prop bets within its prediction markets, signaling a shift toward mainstream adoption. Fanatics has partnered with Crypto.com to launch Fanatics Markets, while DraftKings and FanDuel are preparing to roll out their own prediction platforms.
In the cryptocurrency sector, Coinbase has joined forces with Kalshi to offer event-based trading, aiming to become an “everything exchange” for American users. Gemini has also launched a prediction markets platform, following approval from the Commodity Futures Trading Commission (CFTC). These moves reflect a broader trend of convergence between investing and gambling, as financial apps integrate prediction markets alongside traditional assets.
How Prediction Markets Work
Prediction markets operate by allowing users to buy and sell contracts tied to the outcome of specific events. For example, a contract might ask, “Will one bitcoin end this year higher than $200,000?” If a user believes the answer is yes, they can buy a contract at a certain price. If the event occurs, the contract pays out at full value; if not, it expires worthless. The price of each contract reflects the market’s collective probability estimate for the event.
Unlike traditional sportsbooks, prediction market trading volume counts both sides of each trade. For instance, if one user buys a 40-cent contract and another takes the 60-cent side, the total volume is counted as one dollar. This method makes direct comparisons with sportsbook handle complex, but analysts estimate that mature sports prediction markets could support about 60% to 80% of today’s regulated online sports betting handle.
Regulatory Landscape: Progress and Challenges
The regulatory environment for prediction markets in the United States is evolving rapidly. Kalshi made headlines by becoming the first platform to receive full approval as a Designated Contract Market (DCM) from the CFTC. This approval allows Kalshi to offer event contracts tied to real-world economic indicators, such as the Consumer Price Index and unemployment rates, under strict federal supervision. The process required Kalshi to meet rigorous standards for market integrity, financial safeguards, and anti-manipulation measures.
Other platforms have faced regulatory hurdles. PredictIt operated under a limited academic exemption but lost its no-action letter from the CFTC in 2022, leading to ongoing legal challenges. Polymarket faced enforcement action for offering unregistered event contracts to U.S. users, resulting in penalties and restrictions. However, the CFTC recently approved Polymarket’s plan to resume limited U.S. operations through a registered intermediary, showing that regulatory accommodation is possible within defined frameworks.
For wealth management professionals and investors, understanding which platforms are fully regulated versus those operating in legal gray areas is crucial. The regulatory clarity provided by recent CFTC actions is expected to attract more institutional investors and encourage further innovation in the sector.
Why Prediction Markets Are Gaining Traction
Prediction markets have several unique features that set them apart from other financial products. First, they are directly tied to real-world events, which means there is always a fresh supply of new contracts and trading opportunities. This connection to ongoing news cycles—such as political elections, sports outcomes, and economic data—keeps users engaged and active, even when volatility in other markets subsides.
A recent study by Dune and Keyrock found that Polymarket maintained stronger month-to-month user activity than 85% of other crypto platforms, including wallets, DeFi protocols, and exchanges. Since early 2024, monthly notional volume in prediction markets has surged from under $100 million to over $13 billion, with active users rising from about 4,000 to over 600,000 and transactions reaching 43 million. This growth is driven by the constant influx of new events and the appeal of simple, binary contracts.
Accuracy and Market Impact
Prediction markets have demonstrated impressive accuracy in forecasting outcomes. Platforms like Polymarket and Kalshi achieve Brier scores near 0.09, outperforming expert polls and sophisticated economic models. For example, Polymarket’s event outcomes align correctly about 90–95% of the time, with accuracy improving as liquidity deepens. This precision has made prediction markets valuable tools for gauging macroeconomic and political sentiment, often anticipating shifts faster than traditional forecasting methods.
In recent weeks, prediction markets have played a prominent role in tracking the race for the next Federal Reserve chairman. On Kalshi and Polymarket, users have actively traded contracts on whether Kevin Hassett or Kevin Warsh will be nominated, with market sentiment shifting in response to news reports and public statements. This real-time feedback loop provides insights that are often more responsive than conventional polling or expert analysis.
Institutional Adoption and the Road Ahead
While most prediction market activity has come from retail users so far, analysts expect institutional investors to enter as liquidity grows and market makers deepen their presence. The integration of prediction markets into mainstream financial apps—such as Gemini’s super app and Coinbase’s partnership with Kalshi—signals that these products are moving beyond speculation and becoming mature components of capital markets.
The momentum is also driven by the scalability of market architecture, which supports a broad range of products packaged as yes/no or binary outcome contracts. As more platforms receive regulatory approval and institutional participation increases, prediction markets are likely to become a standard feature of the financial landscape.
Convergence of Investing and Gambling
A broader trend is emerging where the lines between investing and gambling are blurring. Chris Grove from Eilers & Krejcik notes that gambling is increasingly resembling investing, while investing is adopting elements traditionally associated with gambling. This convergence is reflected in the design of prediction markets, which combine the excitement of wagering with the analytical rigor of financial speculation.
For example, Robinhood encourages users to move between equities and prediction markets, while FanDuel integrates predictions into its sportsbook. This cross-selling is likely to diverge as platforms develop distinct strategies to attract different types of users.
Risks and Regulatory Uncertainty
Despite the optimism, significant risks remain. Legal and regulatory challenges could delay or derail the growth of prediction markets, especially as authorities work to define clear boundaries for permissible activities. Platforms that fail to comply with registration and oversight requirements face enforcement actions, as seen with Polymarket and PredictIt.
For investors and wealth management professionals, it is essential to understand the regulatory status of each platform and the risks associated with event-based trading. The evolving legal framework will shape the future of prediction markets and determine how they are integrated into broader financial systems.
Conclusion: A Trillion-Dollar Future?
Prediction markets are at a crossroads, with strong consumer demand, rapid innovation, and growing institutional interest setting the stage for explosive growth. The industry’s projected rise to a trillion dollars in annual trading volume reflects its potential to become a core part of the financial ecosystem. As regulatory clarity improves and more mainstream platforms enter the space, prediction markets are likely to play an increasingly important role in how people invest, speculate, and understand the world around them.
The next few years will be critical as prediction markets transition from speculative assets to mature financial products. With the backing of major financial firms, regulatory progress, and a steady stream of real-world events to fuel engagement, the sector appears poised for a supercycle of growth that could reshape both investing and gambling for years to come.
