Will Prediction Markets Follow Crypto’s Path and Become Another Emerging Asset Class?

▲ Will prediction markets follow the path of cryptocurrencies…could they become another emerging asset class?/ChatGPT-generated image

Once dismissed as a speculative tool of the “dark corners of the internet,” prediction markets have stepped into the spotlight on Wall Street, tracing a path reminiscent of the past cryptocurrency boom.

According to investment outlet The Motley Fool on February 28 (local time), prediction markets have recently gained rapid popularity in the form of “event contracts” covering not only sports games, elections, and geopolitical conflicts, but also interest rates, gross domestic product (GDP), and corporate earnings forecasts. Analysts say this mirrors the trend from about five years ago when Wall Street began recognizing Bitcoin (BTC) as a new asset class and incorporating it into portfolios.

Goldman Sachs, a major Wall Street investment bank, evaluated prediction markets as well-suited for integration with its financial derivatives business. The U.S. Federal Reserve has also suggested in research reports that prediction markets could be useful in shaping economic policy decisions. Observers note the parallels with the period when cryptocurrencies first began attracting institutional attention as an “emerging asset class.”

However, alternative views on prediction markets have also emerged. Betting on outcomes such as sports results is seen by some as not fundamentally different from legalized gambling, with the only distinction being that participants wager against other investors rather than a casino. Critics argue that, like meme stocks and meme coins, prediction markets represent yet another speculative arena attracting retail investors seeking short-term gains.

Amid a broad downturn in the cryptocurrency market, prediction markets are drawing interest for their potential to generate returns even in declining conditions. For example, participants can bet on whether a specific cryptocurrency will fall below a certain price by a set date. In line with this trend, some asset managers have launched exchange-traded funds (ETFs) focused on political event-based prediction markets, and further expansion into other areas is being discussed.

As an alternative to direct investment, platform companies are also being highlighted. Although direct investment in platforms such as Kalshi and Polymarket remains limited, Robinhood Markets is rapidly capturing the space by offering 1,672 prediction contracts within its app. With a market capitalization of $72 billion, Robinhood is cited as a representative beneficiary, while the ongoing debate in Washington over regulatory authority is expected to be a key factor in determining the ultimate winners.

Disclaimer: This article is for investment reference only and we are not responsible for any investment losses incurred based on it. The information provided should be interpreted for informational purposes only.