⋅ ⋅
I see prediction markets as a powerful trend, set to become hugely popular in the decades to come, gaining momentum in both the crypto and non-crypto worlds.
Much of the investment world involves gathering different pieces of information about the world, and this aggregate information is reflected in the price of a stock, bond, commodity, etc. Traders at hedge funds do tons of esoteric research and try to profit from obscure knowledge, often indirectly. A popular example is gathering satellite images of parking lots outside different retailers to gauge store traffic, and therefore earnings performance, and thus, how the stock will perform.
Prediction markets cut out the middleman, allowing traders to bet directly on the outcomes of different events rather than trying to profit indirectly. For example, a person skilled at aggregating data on Tesla’s quarterly car sales could bet directly on the outcome (e.g., >200k cars sold) rather than being exposed to the stock price, which can be influenced by various factors like buybacks, poor guidance, or scandals. Now, imagine even further: an expert in predicting weather patterns could bet directly on the amount of rainfall in a particular region. This way, they profit directly from their specific knowledge without being affected by unrelated market factors, such as the overall economic climate or unexpected company news.
In the crypto space, Polymarket stands out as a winner in liquidity and overall mindshare. On the non-crypto side, Kalshi leads in actual monied prediction markets, and Manifold Markets is popular for those trading for fun, status, and paper money. If you’re still skeptical about this trend, consider the fact that Susquehanna International Group recently started a trading desk acting as a market maker for Kalshi, which indicates growing interest in this new “asset class” of Event Contracts.
Whether prediction markets will go mainstream like sports betting remains to be seen, but I think it may be tougher to compete with sports for the average person’s attention. That being said, Polymarket’s election odds have already made waves in the political sphere due to former President Trump’s embrace, and mainstream media exposure will likely increase throughout 2024 leading up to the election, providing serious tailwinds. When it comes to political pundits and other areas where people love to make future predictions, there’s no substitute for putting your money where your mouth is and I only see this space getting bigger.