NEW YORK: Prediction markets companies are likely to see their revenues grow by a factor of five to more than US$10bil by 2030, according to analysts at Citizens Financial Group Inc.
Companies like Kalshi Inc and Polymarket have recently seen soaring trading volumes on their event contracts, which offer a regulated way to bet on sports, politics and culture.
Devin Ryan and a team of analysts at Citizens estimate that the industry’s revenues are currently running at around US$2bil a year.
They believe that at Robinhood Markets Inc, which offers trading on Kalshi contracts, it has been the fastest scaling product in the company’s history and already accounts for around 10% of the company’s revenue.
But there is more “exponential” growth ahead, the analysts conclude in a note sent to clients on Monday, as hedge funds and others use these markets to place bets on the probability of central bank moves and mergers and acquisitions.
“We apply some similar parallels to the kind of adoption that we saw in products like options in the early days and the amount of penetration we saw early on and that gets us to the multiples of the dollar value that is being transacted today,” Ryan said in an interview.
Prediction markets have offered a way to bet on sports even in states where gambling is not legal, and this has accounted for a majority of Kalshi’s business to date.
This is, in itself, a big business opportunity, with legal gambling representing a US$100bil market globally, according to Citizens. Sports gambling companies have recently made moves to offer event contracts so they can compete.
But the Citizens analysts say that prediction markets offer a direct, binary way to bet on economic and corporate events that could be useful to a broad array of investors.
They argue that is possible, in part, because prediction market exchanges can spin up contracts so quickly and “because they offer unmatched precision in expressing views and hedging idiosyncratic risks that traditional tools cannot adequately isolate.”
“We are in the very early days, people are focused on sports because that is where the activity is,” Ryan said. — Bloomberg
