Trading venues Robinhood and Coinbase are poised to become significant beneficiaries as prediction markets gain traction, according to a report by Cantor Fitzgerald. The report highlights that while prominent platforms like Kalshi and Polymarket remain private, public companies are already engaging with this growing trend by integrating event-based trading features into their platforms.
Prediction markets allow users to buy contracts based on real-world outcomes, encompassing a range of topics from elections to economic indicators. The pricing in these markets reflects the collective sentiment regarding probabilities of various events occurring. Ramsey El-Assal, an analyst at Cantor Fitzgerald, noted that the volume of contracts being traded is projected to maintain its substantial growth.
For companies such as Robinhood and Coinbase, the business model for prediction markets is particularly appealing. Unlike traditional gambling platforms that operate by taking the opposing side of bets, these markets generate revenue through trading activity. This aligns closely with the existing models of equities and cryptocurrency trading, where both companies have already established a significant presence.
Robinhood has reported encouraging progress with its prediction markets hub, which was launched following the 2024 U.S. election cycle. This offering has quickly emerged as one of its fastest-growing revenue streams, with users trading billions of contracts linked to sports, political events, and economic developments.
Coinbase is similarly venturing into prediction markets, harnessing Kalshi’s infrastructure to offer its product across its user base. Though still in the nascent stages of rollout, Coinbase’s prediction markets cover categories such as cryptocurrency, economic data, and global events.
The report emphasizes that companies with large retail customer bases and established trading infrastructures hold a competitive advantage. This allows them to foster quick liquidity and increase participation in prediction markets.
Contrary to the perception that prediction markets resemble gambling platforms, Cantor Fitzgerald argues that participants are engaged in informed trading. Users buy contracts they assess as undervalued and sell those they consider overvalued, akin to operations in the stock market. The dynamic nature of these markets ensures that prices adjust in real time as new information is introduced, resulting in what the report describes as continuously updated forecasts influenced by financial incentives.
Looking ahead, Cantor Fitzgerald envisions broader applications for prediction markets, suggesting they could become valuable tools for institutional investors in areas such as risk management and macro hedging. However, regulatory challenges persist. The report notes that the current regulatory landscape is complex, with a divided stance among federal and state authorities regarding whether prediction markets should be classified under derivatives law or gambling regulations.
Despite these uncertainties, Cantor Fitzgerald concludes that prediction markets are unlikely to diminish in relevance. As the regulatory framework becomes clearer, companies with expansive user bases and robust distribution channels, particularly Robinhood and Coinbase, are likely to be well-positioned to leverage this emerging sector.
