Bernstein Forecasts Annual Prediction Market Volume Will Top $10 Trillion by 2035. Here's What Crypto Investors Need to Know.

Prediction markets have boomed during the past few years.

Platforms like Kalshi and Polymarket let anyone bet on just about anything. People can bet on whether the Federal Reserve will raise interest rates, who will win an election, or even whether a celebrity will make an appearance at a big event.

Prediction market trading volume is forecast to reach $410 billion this year, but this is just the beginning, according to a team led by Bernstein analyst Gautam Chhugani, who estimates that prediction market volume could top $10 trillion by 2035.

Here's what this means for crypto investors.

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Crypto will gain share in prediction markets

Prediction markets pose a form of competition for crypto, mainly because they offer people many other ways to speculate, which may divert some interest from the thousands of speculative cryptocurrencies on the market.

But cryptocurrencies, along with other financial assets such as stocks and commodities, are poised to capture the largest share of prediction market volume, with Chhugani's team forecasting growth from 12% of total volume in 2025 to nearly half by 2035, outpacing sports.

"We expect new products such as KPI (key performance indicators) markets, which allow users to trade a single corporate metric, such as production, deliveries, or subscriber growth, rather than the stock price itself," Chhugani wrote in his research note. "Further, perp futures are expanding from crypto to commodities and single stock perps."

The shift is already underway on the major betting platforms. Crypto bets on Kalshi rose from less than 5% of total volume in January to roughly 20% by August. Crypto accounted for 21% of total volume on Polymarket, according to Bernstein, while sports betting rose and betting on politics declined.

Interestingly, short-term crypto contracts, such as betting on the direction of Bitcoin's price during the next 15 minutes, are now contributing to the increased interest in crypto.

For everything you hear about crypto as a potential replacement for the U.S. dollar or about Bitcoin being a store of value, most people simply buy cryptocurrencies to make money, and cryptocurrencies are harder to value than traditional stocks.

"The appeal is not this long-term conviction that crypto is going to be this currency of the future," Tom Anderson, a partner at the consumer insights company Langston, told The Wall Street Journal. "Rather, it's more about short-term upside, and prediction markets provide that same short-term upside."

More crypto prediction markets should put more focus on crypto

Cryptocurrencies and the betting markets do seem to go hand in hand in the new era of digital finance. Cryptocurrencies are known for being volatile, while the prediction markets provide more ways for people to take advantage of that volatility, for better or worse.

Prediction markets are moving into more near-term or more granular financial events, and so, it seems, is the world of finance. Everything now moves so quickly, and funds need to put up returns ahead of the broader market, which has generated fantastic gains in recent years.

Legendary hedge fund manager David Einhorn now says that with so many people passively invested in the market, value investing is "dead."

Being able to bet on a single financial metric, such as where Bitcoin will trade in a few hours, creates new market inefficiencies for tuned-in investors to exploit.

For crypto specifically, I don't necessarily see this as a bad thing, because if people are interested in where Bitcoin will trade in the next 15 minutes, they are likely to be more interested in Bitcoin overall. Crypto has largely been driven by sentiment and momentum, and this new development could feed into these historic drivers.

Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.