Citizens Bank Sees Predictions Market Becoming New Asset Class

A new analysis from Citizens Bank finds prediction markets becoming an emerging asset class.

The bank’s findings, flagged Monday (Dec. 15) in a CoinDesk report, come amid steady growth for platforms such as Robinhood, Kalshi and Polymarket.

According to the report, Citizens’ analysts argue that these markets address a key flaw in traditional finance by letting investors trade on events like election results and inflation figures instead of depending on things like futures and exchange-traded funds (ETFs).

Robinhood’s acquisition of MIAX’s derivatives exchange is viewed as a critical step toward vertical integration and closer ties with institutional investors, cuing up event contracts as a connector between retail and professional liquidity, the Citizens analysts wrote.

And although risks such as regulatory uncertainty, fragmented rules and thin liquidity still face the prediction markets, the analysts say the markets are showing themselves to be more responsive than polls or price proxies around American elections and bitcoin ETF approvals.

Thus far, adoption has mostly been among retail users, the analysts said. That’s because the contracts are easier to understand than many derivatives, and because sporting events serve as an easy entry point.

However, Citizens expects institutional investors to move in as liquidity grows, market makers deepen their presence and spreads tighten, the report added.

“The momentum in the prediction market space is underpinned by several forces,” PYMNTS wrote in October. “First, the market architecture allows for far broader products: finance, culture, politics, entertainment, weather and increasingly sports, all packaged as yes/no contracts or binary outcomes.”

Aside from that, the report added, the entrance of major platforms is an indicator of scale. At the time, the markets had just reached a record high of $2 billion in weekly volume, reaching higher heights and seeing more volume than during the presidential election of 2024.

“Still, despite the appearance of financial-market sophistication, prediction markets can raise troubling parallels with gambling,” the report said. “That is most apparent when the event contracts track sports competitions, anecdotal political outcomes or entertainment awards. Such structures can resemble bets more than hedges on commodity futures.”

And as covered here last week, several states are attempting to shut down prediction markets they view as unlicensed or illegal gambling operations. These include recent efforts in Connecticut and Massachusetts, joining states such as New York, New Jersey, Nevada, Maryland, Arizona and Illinois.