Here's How the Prediction Market Boom Is Connected to the Crypto Sector

Prediction markets are seemingly everywhere these days. They are being used to predict the outcomes of political elections, sporting events, and just about any situation you can possibly imagine -- from whether or not the United States will invade Greenland, to how many Oscars a nominated film will win this year.

As you might imagine, prediction markets are also popular with crypto investors. With that in mind, here are three ways prediction markets can be used to make you a more successful crypto investor.

Get a quick temperature check on a specific cryptocurrency

Some of the most popular cryptocurrencies for prediction markets include Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH), and XRP (CRYPTO: XRP). All of them are often subjects of rampant speculation about how much higher (or lower) they might go. Thus, they are a perfect fit for prediction markets.

Using data from prediction markets, it's easy to see how a prediction about the future price of Bitcoin (or any other cryptocurrency) is really just a range of possible outcomes that can be used as inputs for a statistical model.

For example, on Polymarket, there's a 45% chance of Bitcoin hitting a price of $120,000 in 2026 and a 22% chance of it hitting a price of $150,000. On the other hand, there's a not insignificant (9%) chance of Bitcoin completely cratering in value and dropping all the way to $25,000.

Make directional bets on a specific cryptocurrency

You can also use prediction markets to place speculative bets on the future price of a popular cryptocurrency. This goes one step beyond just checking in on the price of, say, Bitcoin. You are now actively putting your money to work by purchasing prediction market contracts. If the outcome is "yes," you win. If the outcome is "no," you lose.

Image source: Getty Images.

For example, last year, I bought some prediction market contracts for the future price of Bitcoin. My contracts predicting a future price of $125,000 in 2025 settled "yes," and I made money, because Bitcoin eventually hit an all-time high of $126,000 in October. However, my contracts predicting a future price of $150,000 and $200,000 for Bitcoin settled "no," and I lost everything.

Hedge your crypto position

It's also possible to hedge a specific crypto position. In other words, you can purchase prediction market contracts to provide some downside risk protection for a core holding in your portfolio.

For example, let's say you hold some XRP in your portfolio. You're wildly bullish, and expect XRP to soar in value. However, what if XRP instead collapses in value? Just in case, you might want to buy some prediction market contracts that predict a decline in price for XRP. That way, you'd win even if you lose.

The entry of Robinhood into prediction markets

Thus far, the two big names in prediction markets are Kalshi and Polymarket. But there's one relatively new entrant -- Robinhood Markets (NASDAQ: HOOD) -- that has been making a big splash with its own prediction market contracts. These were first launched in October 2024, and now include prediction market contracts for specific cryptocurrencies, including Bitcoin, Ethereum, XRP, Dogecoin (CRYPTO: DOGE), and Solana (CRYPTO: SOL).

That leads me to think that prediction markets will become more and more integral to managing a crypto portfolio going forward. Maybe you don't currently think of yourself as a hedge fund manager, but with prediction market contracts, you now have access to some very powerful tools for making money, no matter which way the markets move.

Dominic Basulto has positions in Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.