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From specialized sector to a $3 billion revenue trajectory: forecast markets target a $10 billion future, according to Citizens.
The bank indicated that increasing volumes, a more refined market structure, and initial engagement from institutions are propelling prediction markets beyond their traditional gambling origins towards becoming a new asset category.
From niche to $3 billion run rate: prediction markets eye $10 billion future, Citizens says. (CoinDesk)
What to know:
- Citizens estimates that current annual revenue for prediction markets exceeds $3 billion, with the potential to reach $10 billion by 2030.
- Volumes in January increased by over 40% compared to December, with February maintaining similar levels despite expectations of a slowdown following the football season.
- The bank noted that institutions are beginning to participate as data consumers and liquidity providers, establishing a foundation for wider acceptance.
The expansion of prediction markets is accelerating as traders look for more accurate methods to price and hedge specific events, ranging from elections to interest rate decisions, without depending on less precise proxy trades.
According to a report released on Monday by U.S. bank Citizens, prediction markets are currently generating an annualized revenue rate above $3 billion, an increase from around $2 billion in December, and have the potential to hit $10 billion by 2030.
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The bank mentioned that increasing volumes, enhanced market structure, and early participation from institutions indicate a trajectory that resembles the initial development of listed derivatives and digital assets.
"We continue to consider an annual industry revenue of approximately $10 billion by 2030 as a plausible medium-term milestone rather than a final destination," analysts led by Devin Ryan stated.
Prediction markets have swiftly evolved from niche betting into an expanding network of advanced trading platforms that consolidate probabilities of real-world events. Notable players in this space include Kalshi, a CFTC-regulated U.S. exchange for event contracts, and Polymarket, one of the largest decentralized markets focusing on politics, sports, and economics. These platforms are attracting significant volumes and interest from traditional finance and regulatory authorities, reflecting the overall growth and the shift towards institutional importance.
Asset classes generally expand from liquidity primarily driven by retail participants to professional market makers and eventually to institutional investors, which enhances depth and sophistication, the analysts remarked, asserting that prediction markets are following this trajectory.
In January, volumes increased by over 40% compared to December, with February showing similar growth despite expectations of a reduction post-football season. While sports continue to be a major source of liquidity, activities are diversifying into macroeconomic, political, and regulatory events, which are more in line with institutional interests.
Prediction markets enable investors to mitigate risks associated with discrete events, such as inflation surprises or M&A approvals, without relying on proxy instruments like index futures or options, thus minimizing basis risk. By isolating specific outcomes, they offer targeted risk transfer and real-time, capital-weighted probability indications, as stated by Citizens.
Initial institutional involvement is occurring through data integration, liquidity provision, settlement standards, and regulatory clarity, with direct trading expected to increase as the infrastructure develops. While current revenues are predominantly transaction-driven, the bank’s analysts anticipate growth in data, research, and financing services as the ecosystem matures.
Read more: How AI is helping retail traders exploit prediction market ‘glitches’ to make easy money
