How Prediction Markets and Crypto are Colliding

Prediction markets are the new hot topic in the US sports betting and finance industries, emerging from niche political polling tools to multi-billion-dollar valuations and trading volumes in just a few short years. Their rise is inextricably linked with crypto. Although not all markets are crypto-based, many are - and the two financial tech markets impact each other in many ways. Some obvious and some more subtle.

This article will look at the big players, Kalshi and Polymarket, as well as others, to see how the world of crypto investment and trading has reacted to the new platforms that everyone is talking about -from fully embracing the blockchain, to trades on the price of crypto or even just using prediction markets to monitor global commodity and crypto price movements.

A Very Quick Summary of Prediction Markets

For those not aware, prediction markets are platforms that make financial-style markets out of yes/no questions - questions across the worlds of finance, sports, politics, pop culture and more.

Traders buy shares in an answer between $0.01 or $0.99 (reflecting the probability of the answer as determined by the market) and then when the contract completes those holding the correct prediction are paid out $1 for each share.

They have become hugely successful in the US - recently hitting over $50 billion in monthly volume during the FIFA World Cup. That's because they offer something similar to betting and financial trading rolled into one - both things that were already hugely growing in America. All that without being federally considered gambling, instead regulated by the Commodity Futures Trading Commission as financial markets.

Kalshi Runs Crypto Markets

The main competitor at the top of the prediction market game right now is Kalshi. The US-based operation is not a blockchain-based platform. However, it does run many crypto event trade markets. For example at Kalshi right now, there are markets such as:

1. Will BTC hit $200,000 by 2027

2. When will BTC return to $75,000?

3. The price of various coins today at 5pm EDT (updated daily)

4. XRP All-Time high this year?

5. Will Tether de-peg [from the USD] this year?

As you can see, these questions allow traders to put money down on predicting the prices of crypto, without direct exposure to crypto markets. As well as that though, they also offer markets that are tangential questions such as market events in the crypto space.

Although Kalshi's success has had an impact on crypto markets, the main reason it has been so successful is because of sports contracts. It has heavily marketed itself as a sports-oriented platform, and according to some reports up to 80% of its trading volume is now on sports.

For example consider SBR's overview of Kalshi's promo codes. Sportsbook Review - the clue is in the name - is a trusted name in the sports betting review space. It offers bettors (and now traders) a way to compare their options between platforms, including welcome offers and sign up bonuses. Just the fact SBR now offers similar services for prediction markets shows you which way this wind is blowing for prediction markets and sports trading.

Polymarket Integrated the Blockchain from the Start

Kalshi's biggest competitor is Polymarket. The platform has made crypto part of its business model from the beginning. It uses the Polygon network for low latency transactions, and markets are priced in the USDC stable coin rather than USD or a standard crypto coin like BTC or ETH.

This means there is no conversion friction, or added risk of losing out on the conversion if the market shifts - while still being fully integrated into the crypto space. Polymarket users can also link their accounts to off-site crypto wallets, meaning Polymarket never directly holds a users deposits.

It also offers a wide-range of crypto markets - including more niche question contracts as it has less of a focus on sports than Kalshi. Interestingly, its focus on geopolitics and real-world event markets has proved almost as controversial as Kalshi's decision to double down on sports markets.

Prediction Results Can Inform Crypto Trading (And Vice Versa)

While Kalshi might have a much higher trading volume on the 2027 Super Bowl winner (The Los Angeles Rams are favorite at 16% if you were wondering) than on even the biggest crypto contract, there are still a wide number of crypto markets available that attract tens of millions in trading volume individually.

Crypto trading is well known for its volatility. Kalshi, Polymarket and other prediction markets that offer crypto price prediction contracts offer a fixed-downside, binary option for hedging exposure.

Potential crypto business events like a potential Tether de-peg from the USD are also a way for crypto traders to gauge market opinion on long-term events. Such a move could have a huge price impact on Tether and other crypto coins, so traders can use Kalshi and Polymarket contracts as a way to monitor these market considerations months in advance.

On the other side, traders who spot a massive price swing incoming on the market could also double down on gains (or hedge) by taking up a Kalshi or Polymarket position on the daily price.