Prediction markets could reach trading volume of up to $1 trillion: E&K report

Prediction markets could reach an annual trading volume of $1 trillion by the end of this decade, according to a new report from Eilers & Krejcik, a research firm specializing in the sports and interactive gaming sectors.

“There are numerous factors, most notably legal and regulatory challenges, that could delay or impede the growth of prediction markets,” Chris Grove, an emeritus partner and strategic advisor at Eilers & Krejcik, told CNBC. “But the underlying elements of consumer demand and the variety of brands looking to meet that demand are clearly in place.”

This growth will be fueled by sports, which E&K expects will account for 44% of forecast market volume in the long term.

The thriving predictions space allows users to bet on events in culture, politics and sports, among other markets. The rise in popularity of platforms like Polymarket and Kalshi has inspired traditional sportsbooks to launch their own prediction platforms.

Comparing predictive trading volume to a sportsbook’s handle, or bet amount, is complicated, because in prediction markets both sides of the trade are counted as volume.

For example, if one person buys a contract worth 40 cents and another person takes a position worth 60 cents, that represents a dollar in trading volume. In sports betting, a dollar bet is just $1.

E&K formulated a formula to translate forecast volume into handle and concluded that mature sports prediction markets could support a style of sports betting that represents approximately 60% to 80% of the licensed and regulated online sports betting market.

Of course, online sports betting is only legal in 31 states; Prediction markets were launched in the 1950s.

Robinhood This week introduced additional prediction markets features that allow users to trade NFL bets and prop bets.

“Sportsbooks are certainly seeing the writing on the wall and how this could completely disrupt their business,” CEO Vlad Tenev told CNBC on Wednesday.

Fanatics, in partnership with Crypto.com, launched Fanatics Markets at the beginning of December to offer predictive trading. Kings Project and FanDuel They are expected to launch their forecasting platforms by the end of the month.

Currently, platforms like Kalshi, robinhood, Crypto.com, Polymarket and Fanatics are making nearly $10 billion, according to an analysis this week by Citizens. But analysts point out that “prediction markets are in the early stages of an exponential expansion as the asset class transitions from speculative to a more mature component of capital markets, with institutions likely to come next.”

Tenev said it more clearly: “We believe we are in the early stages of a prediction market super cycle.”

As markets mature, cross-selling leads will likely diverge. After all, the way FanDuel convinces a prediction customer to join an online sports betting site or icasino will look very different from how Robinhood works to convince a prediction trader to try stock trading.

However, a broader trend is emerging: the convergence of investing and gambling.

“There has always been some overlap between the two, but we seem to live in a world where gambling exists [becoming] “More like investing just as investing pushes more and more in the direction of gambling,” Grove said.

Disclosure: There is a business relationship between CNBC and Kalshi.