Prediction markets – once a small, experimental corner of crypto and retail speculation are rapidly entering mainstream finance, according to a new report from Bernstein Research. The firm highlighted that platforms such as Polymarket and Kalshi have seen exponential growth this year, both in volumes and institutional participation, signaling that event-based trading is maturing into a legitimate asset class.
Bernstein’s analysts estimate that prediction-market trading volumes have surged past $2 billion per week, with liquidity increasingly driven by professional traders and data-driven funds. What began as a niche retail phenomenon tied to political events has expanded into a broad ecosystem covering macroeconomic indicators, corporate outcomes, and sports results.
Why Prediction Markets Are Gaining Ground
Bernstein attributes the sector’s momentum to three key forces: regulatory developments, institutional adoption, and technological scalability. The CFTC’s ongoing reviews of event-contract frameworks, coupled with recent approvals for limited prediction-market operations in the U.S., have helped legitimize the space. Meanwhile, companies such as Gemini and Coinbase have explored derivatives-style prediction products, further blurring the line between speculative forecasting and traditional finance.
Institutional players are beginning to use these platforms for hedging, sentiment analysis, and probabilistic forecasting, according to the report. For instance, some hedge funds are experimenting with prediction-market data to inform macro positioning, while corporate treasuries and policy analysts view these markets as real-time indicators of crowd expectations.
Bernstein likened the current stage of prediction markets to the early growth phase of crypto derivatives a decade ago – nascent but increasingly impossible for major financial institutions to ignore.
Future Growth and Institutional Adoption
Looking ahead, Bernstein forecasts the total value of traded prediction contracts could quadruple within three years, surpassing $10 billion in annual volume. The analysts said that regulatory clarity and integration with traditional exchanges could accelerate adoption.
Still, challenges remain. The sector must balance compliance with its open-market ethos, mitigate manipulation risks, and ensure transparent liquidity mechanisms. Despite these hurdles, Bernstein’s report suggests the momentum behind prediction markets is “structural, not speculative,” implying they may soon be treated as a standard financial instrument within diversified portfolios.
For Wall Street, this evolution represents both a new source of price discovery and a potential shift in how markets interpret uncertainty – turning predictions into tradable probabilities.
