The prediction market sector is experiencing explosive growth in trading volume, leading Wall Street investment banks to forecast a significant expansion for this emerging field. According to recent analyses from firms including Bernstein and Cantor Fitzgerald, the growth trajectory of the prediction market industry, led by platforms like Kalshi and Polymarket, is now comparable to the artificial intelligence (AI) boom. Within public markets, Robinhood (HOOD.US) and Coinbase Global, Inc. (COIN.US) are identified as the primary vehicles for gaining exposure to this high-growth trend.
Trading volume has surged dramatically. An analyst from Bernstein highlighted that in just the first few months of the year, the annualized trading volume for the two leading platforms, Kalshi and Polymarket, has already reached approximately $60 billion, surpassing the total volume of $51 billion recorded for the entire previous year. Full-year market volume for the current year is projected to hit $240 billion, representing a massive 370% increase year-over-year.
The long-term growth outlook is even more impressive. The analyst forecasts that from next year through the end of the decade, prediction markets will maintain a compound annual growth rate of around 80%. By the start of the next decade, annual trading volume is expected to reach $1 trillion. This growth is anticipated to be fueled by greater regulatory clarity at the federal level, which would unlock market potential. Additionally, the integration of blockchain tokenization and cryptocurrencies is expected to enhance market liquidity. The composition of trading contracts is also likely to evolve, with institutional markets for economic, commercial, and political events expected to develop as investors seek more direct and precise exposure to specific events.
An analyst from another institution noted that Kalshi, which commands over 90% market share in the US, is one of the nation's fastest-growing companies outside the AI sector. Its weekly trading volume has skyrocketed from around $100 million a year ago to over $3 billion currently.
Regarding the key beneficiaries in public markets, while Kalshi and Polymarket remain privately held companies, savvy capital is already positioning itself through proxy investments in the public market. Analysts from both Bernstein and Cantor Fitzgerald point to Robinhood and Coinbase Global, Inc. as the standout candidates.
The Bernstein analyst noted that Robinhood's prediction market hub, launched a year ago, has already achieved an annualized recurring revenue of $350 million and accounts for roughly 30% of Kalshi's total trading volume. This segment has become Robinhood's fastest-growing business unit, potentially incentivizing the company to develop its own exchange.
Coinbase Global, Inc. has also rolled out prediction market features. Its prediction market product, supported by Kalshi's infrastructure, is now available to its entire user base. Although still in early stages, the product covers various categories including cryptocurrencies, economics, and global events. An analyst from Cantor Fitzgerald emphasized that the core strengths of these two companies lie in their vast retail user bases and existing trading infrastructure, enabling them to rapidly drive liquidity and user engagement.
Currently, sports-related contracts dominate prediction markets, accounting for over 60% of trading volume. However, Bernstein anticipates this proportion will halve by 2030. Future growth is expected to come from increasing institutional demand. The Bernstein analyst suggested that as regulatory clarity improves and blockchain tokenization enhances liquidity, corporations, insurers, and institutional investors will increasingly utilize prediction markets for macroeconomic hedging and managing exposure to specific event risks. The sector is thus evolving from a speculative tool for retail investors into a versatile risk management instrument for institutions.
Cantor Fitzgerald also sees long-term applications in hedging and forecasting. An analyst from the firm countered the misconception that prediction markets are equivalent to gambling, explaining that their mechanics are similar to stock trading—users buy and sell probability contracts perceived as "overvalued" or "undervalued," with platforms earning transaction fees rather than profiting from user losses. The firm stated that prediction markets are poised to become a multi-purpose tool for institutional investors, highlighting their potential in risk management and macro hedging strategies.
Despite the promising outlook, the current regulatory environment is described as "chaotic" by Cantor Fitzgerald. There is disagreement between federal and state authorities over whether prediction markets should be regulated under derivatives law or gambling statutes. An analyst from another bank noted that there are currently pending lawsuits in 14 US states, along with four congressional bills under consideration, with primary concerns revolving around insider trading. Some states have initiated legal actions against prediction market platforms, asserting their authority to regulate sports betting, while the Commodity Futures Trading Commission (CFTC) is contesting these actions, claiming exclusive federal jurisdiction.
Nonetheless, analysts remain optimistic about the long-term trend. The Bernstein analyst believes that despite state-level challenges, increasing alignment between platforms like Kalshi and Polymarket, along with public companies, and federal regulators such as the SEC and CFTC, will lead to greater regulatory clarity. This clarity is seen as a key catalyst for market legitimization and mainstream adoption. Cantor Fitzgerald concludes that prediction markets are unlikely to fade away. As the regulatory landscape becomes clearer, companies with large user bases and strong distribution channels, such as Robinhood and Coinbase Global, Inc., are likely to be in the most advantageous position to capitalize on the opportunity.