Crypto exchanges are racing to launch prediction markets as they seek new ways of making money in the face of a prolonged downturn in digital token prices.
British crypto firm Blockchain.com last week applied for a licence in the US to offer regulated prediction markets to American customers. Binance US has also recently applied for regulatory approval to offer prediction markets in the US, according to a person with knowledge of the matter.
They are the latest digital assets and trading groups rushing into the market, following the likes of exchanges Coinbase, Crypto.com and Gemini.
Prediction markets have exploded in popularity in the US as retail traders flock to bet on the outcome of events ranging from sports and elections to central bank decisions and weather events. They are banned for retail investors in the UK because they are considered binary options.
Crypto companies are either launching their own prediction markets or partnering with the two biggest players, Polymarket and Kalshi, as they seek to make money from app users who may now want to trade prediction markets more than crypto.
Event contracts have become hugely popular with retail traders at a time when crypto has endured a prolonged downturn. The prices of bitcoin and ether, the world’s two biggest cryptocurrencies, have fallen 28 and 42 per cent respectively over the past year. Other big tokens including XRP and Solana have halved.
“Retail-facing platforms are all trying to expand their product offerings so they can retain and attract new and existing traders,” said Patrick Moley, senior research analyst at Piper Sandler. “It helps them weather the storm when there’s a crypto winter in providing other products for customers.”
Trading volumes on Polymarket and Kalshi have surged by more than 300 per cent since the start of this year, from $17bn in January to $72bn in September, according to figures from specialist data provider The Block.
Spot crypto trading volumes have fallen 18 per cent over the same period, and shares in crypto companies have plunged over the past year, mirroring the downturn in prices. Exchanges Coinbase and Bullish have nearly halved, while Gemini’s share price has fallen 82 per cent.
“The rapid rise of prediction markets has been impressive and reminds me of the early days of crypto,” said Peter Smith, chief executive of Blockchain.com, adding that the company’s users “want to access prediction markets right alongside their digital assets”.
Crypto.com last month spun out its prediction markets business, OG.com, into a separate entity and sold stakes in both companies to trading platform Robinhood as part of a partnership deal. Bullish has applied for a US licence that would allow it to offer prediction markets to Americans, while Coinbase, the biggest US exchange, partnered with Kalshi earlier this year.
One crypto industry executive said digital asset companies were “all worried that the era of making money solely from crypto is over” and are rushing into prediction markets now that “there are so many different ways to speculate, gamble, bet on anything in the markets”.
Prediction market companies are in legal disputes with some US states, which are trying to apply gambling laws to the platforms — an issue that is now affecting crypto companies in the business. The Michigan Gaming Control Board said this month that Coinbase had agreed to stop providing events contracts to users in the state.