The growth of prediction markets over the past year has been staggering, fuelled in part by the very crypto crash that has left many traders nursing losses. As crypto volumes fell and interest dried up, prediction markets offered something the blockchain world struggled to provide: something to bet on every single day.
The appeal is straightforward. While crypto markets can go quiet for weeks, prediction markets serve up a constant stream of events, from sports results to election outcomes to whether a world leader will give a particular speech. For traders who had grown used to the adrenaline of crypto and then watched their portfolios collapse, that daily activity proved a powerful draw.
Crypto's infrastructure underpins the sector
There is an irony running through this story. Crypto may have lost its shine as a speculative asset, but it has quietly become the financial plumbing for prediction markets. Most prediction trades are funded by stablecoins, dollar-pegged tokens that have held up far better than the broader crypto market and found a practical use case that has eluded much of the industry.
That said, the size gap between the two sectors remains vast. Crypto markets trade hundreds of billions of dollars; prediction markets, depending on the period, trade in the tens of billions. They are growing fast, but they remain a fraction of the scale of the industry whose infrastructure they rely upon.
Sports betting is the engine, and the vulnerability
Sports betting has been the primary driver of that growth, drawing in new users and pushing up trading volumes across platforms including Polymarket and Kalshi, the two dominant players in the space. Every crypto exchange and financial platform has been trying to muscle into the sector.
The problem is that sports betting is regulated state by state in the United States, subject to taxation, and already generating lawsuits, criminal referrals, and outright bans in some jurisdictions. Legislation moving through the Senate aims to block prediction markets from engaging in sports betting altogether. If that effort succeeds, it could strip away half the business these platforms have built.
Two platforms, two strategies
Kalshi has tried to operate entirely within US rules, working through official channels and accepting the constraints of a regulated environment. Polymarket has taken a different approach, running much of its operation offshore and allowing activity overseas that would face greater scrutiny domestically, a model with clear echoes of how Binance approached crypto in its early years.
Observers suggest prediction market founders would do well to study how crypto companies handled their own regulatory battles, including the experience of Coinbase chief executive Brian Armstrong, who spent years trying to engage with Washington and found the process slow, frustrating, and only partially successful.
The lesson from crypto may be that moving fast works until it doesn't.