Prediction markets will transform into mainstream financial tools as institutions adopt this asset class beyond speculation. Citizens released a new report stating this conclusion. Citizens’ estimates predict market revenues approach $2bn run rate through per contract fees currently. Monthly volumes reach approximately $10bn across major platforms, including Kalshi and Polymarket. Analysts forecast this could multiply five times, reaching over $10bn in yearly revenue by 2030. Institutional capital entering the market drives this growth projection.

The report claims prediction markets fix a long-existing problem by letting investors bet on specific events. Traditional hedging tools contain cross-factor basis risk that these markets avoid. Economic indicators, regulatory choices, or merger results can link to binary contracts for cleaner hedges. Sector ETFs or index options provide less precise protection than these instruments.

Prediction Markets Poised for Long-Term Growth in Global Finance

Citizens managing director Devin Ryan stated, “Prediction markets appear poised to become a durable and high-growth part of global capital markets and financial architecture. Their economic significance is ultimately rooted in the same principle that drove the growth of options and derivatives over the past 50 years, when investors can express views more precisely, markets become more efficient.”

Competition expanded greatly during the past year across multiple platform types. Regulated exchanges and blockchain platforms now compete with large brokerages, digital asset exchanges and traditional sports betting companies. Robinhood bought derivatives exchange MIAX recently in what analysts consider a crucial sector development moment. Prediction markets stay small compared to established financial markets, even with fast growth happening. Monthly volumes of $10bn contrast with over $10tn in US equity markets, according to the report.

Institutional Applications for Prediction Markets Are Developing

Citizens found multiple institutional applications that might increase adoption rates. Event-driven hedge funds can target deal, lawsuit, and regulatory results without including beta or duration. Macro funds might hedge inflation data and policy choices using direct methods. Probability curves could serve as strong signal inputs for quantitative trading firms’ models. These contracts lower basis risk, so they should expand total hedging capacity instead of replacing current derivatives. Options, swaps, and ETFs improved risk transfer efficiency in earlier cycles similarly.

Several risks continue threatening the sector, according to the analysts’ assessment. Regulatory uncertainty creates the biggest limitation, especially regarding US federal versus state authority conflicts over sports-related markets. Near-term problems include liquidity splitting, insider information worries, and unclear outcome definitions. The report compared prediction markets to past financial innovations like listed options, ETFs, and credit default swaps. Each faced early doubt before becoming essential market infrastructure components.

Evolution of Prediction Markets: From Retail Participation to Institutional Adoption

Prediction markets follow comparable development patterns, starting with retail users before attracting market makers and institutions. Regulatory formalisation happens between these stages, typically. Sports and entertainment contracts represent over half of the global contract count, providing most retail liquidity. Non-sports markets about macroeconomic events, regulatory decisions, and corporate results will grow faster eventually. These markets should dominate the notional value when institutions participate more.

Ryan stated further: “As brokerages, digital asset exchanges, and traditional financial institutions increasingly explore the space, we believe prediction markets will transition from primarily a speculative curiosity today (albeit rapidly growing) to a mainstream financial tool, becoming a widely used instrument for hedging, speculation, and informational insight, which could in turn have profound implications for asset pricing across sectors.”