The 2024 presidential election was the first time that prediction markets really got mainstream attention. Platforms like Kalshi and Polymarket saw people flock en mass to place bets on the presidential election. Since then, the popularity of these betting platforms has surged. A wide variety of prediction contracts have become available and the platforms are being integrated into both gambling platforms and traditional investment platforms across the country. Everyday investors will soon be able to place bets on stocks and the Super Bowl in the same portal, blurring the lines between investing and gambling in a way that is difficult for regulators and the financial world more broadly to digest.

Betting On The Growth Of Prediction Markets

Unfortunately, much of the surge in popularity of event-driven contracts is supported by younger demographics and a growing sense of financial pessimism. Specifically, Gen Z increasingly believes the American Dream is more unattainable than it was when their parents, the Baby Boomers, were entering the workforce and climbing the ranks. Many find the concept of traditional compounding less attractive than it once was. Rather, people want to get rich, and they want to get rich quick!

A multitude of factors have converged to create a more pessimistic outlook for traditional investing. Sentiment among prospective homebuyers and younger professionals has soured in the aftermath of record-high inflation. In recent years real wages have fallen behind, new opportunities for college graduates are scarce, and unemployment is beginning to trend upward from near record lows. And of course, advertising and marketing for prediction and gambling platforms is everywhere as well.

At this juncture, retail investors need to see through the noise and recognize that this shift in behavior is only the beginning. Choosing institutions that offer stability and protect investors against their own cognitive biases is becoming more important than ever, as is financial education and a healthy dose of patience. However, speculation is tempting – its new guise in prediction markets isn’t going away anytime soon.

Gamified Investing

The lines between investing and gambling are becoming increasingly blurred. Turn on an NFL game on a Sunday and commercial breaks are flooded with advertisements from DraftKings, FanDuel, and BetMGM, all offering promotions for new users and seemingly endless referral bonuses, all in an attempt to lure Americans into a zero-sum game. The platforms not only make betting easy, they also make it seem innocent and entertaining. It’s gamification, but with serious financial consequences.

The gamification doesn’t stop with gambling applications though. Many new era investment platforms have taken a similar approach to try to attract customers. Account promotions, referral bonuses, daily expiration options, leveraged etfs, social media tie ins – the modern retail investing platforms look a lot like gambling platforms. And to be fair to the investing platforms doing this, it’s effective! Robinhood (HOOD), the poster child for the new era of retail investing, has emerged as a force to be reckoned with. While traditional broker dealers are battling to retain clients, Robinhood has added more than 25 million accounts. Not only that, they’ve also helped push the industry to modernize, reduce latency, lower fees, and generally make investing more accessible. But the way these changes are implemented can have real consequences. Reducing friction to increase participation is great, as long as that participation is thoughtful and informed.

Given that we’ve been blurring the lines between investing and gambling, perhaps it’s no surprise that companies are finding ways to add more grey area content like prediction markets to the platforms. After all, prediction markets offer speculation in the purest form. Everything is functionally bet-able, from traditional betting content like sports, all the way to environmental outcomes, inflation rates, or whether or not the United States is going to invade Greenland or Venezuela. These more obscure opportunity sets appeal to a broader subset of the population; everyone feels like they have an area of expertise where they might have an edge.

Betting On Regulatory Outcomes

As prediction markets scale, regulation becomes the defining question. The argument that event-driven contracts amount to illegal betting is unlikely to hold over the long term. Intuitively, the prediction-market structure makes more sense for participants. Instead of betting against the house, traders enter into derivatives contracts tied to specific outcomes and pay a transaction fee. For every buyer of a contract, there is a seller. It’s simple and binary. But every system is subject to manipulation, so, who’s regulating the market?

The Commodity Futures Trading Commission (CFTC) regulates traditional derivatives markets, including futures, swaps, and options, and is now responsible for approving and overseeing companies that offer event contracts to the public. Take Kalshi for example – the company operates as a Designated Contract Market (DCM), allowing it to create and list contracts as long as they comply with the Commodities Exchange Act and CFTC oversight. That regulatory oversight body is critical – it allows the contracts to be distributed under a different set of laws than traditional gambling sportsbooks, bypassing the states regulatory approval process. Unsurprisingly, states that have not legalized sports betting are outraged that their residents can still participate in these markets, particularly as sports-related contracts have come to dominate prediction-market activity.

That regulatory framework is precisely why Kalshi’s partnership with Robinhood matters. By distributing CFTC-regulated event contracts through a mainstream brokerage app, Robinhood is reframing prediction markets as financial instruments rather than gambling products. This structure gives regulators a familiar oversight model while expanding retail access to event-driven contracts, even though a majority of the event-driven contracts are focused on sporting events. This model may prove to be the blueprint for prediction markets to scale nationally. One can’t help but draw parallels to how Bitcoin entered the financial mainstream through ETFs and institutional adoption. On that same note, Coinbase (COIN) recently announced a partnership with Kalshi – imagine that.

The Death Of Sportsbooks

With the growth of prediction markets, traditional sportsbooks like DraftKings (DKNG) and FanDuel have a great deal to lose. Their business model relies on operating as the house, setting odds, and earning revenue through built-in fees. Prediction markets attack that model directly by removing the house altogether. Prices are set by participants, liquidity is crowd-sourced, and the platform earns a transaction fee regardless of outcome. And customers have noticed. More than 80% of Kalshi’s transaction volume is now linked to sports-related event contracts. Look at this weekend’s Super Bowl as an example. Kalshi is offering bets not only on the game, but on who will advertise during the game, what song gets played during the halftime show, and which celebrities will be at the game.

The partnerships between prediction markets and major brokerages like Robinhood also collapses multiple forms of speculation into a single venue. Investors no longer need separate accounts for stocks, options, and sports wagers when all three can be expressed as event-driven contracts inside a brokerage account. A Super Bowl contract traded alongside equities and options feels less like gambling and more like portfolio allocation, particularly for younger investors already comfortable trading frequently. Sportsbooks, by contrast, remain walled-off ecosystems dependent on separate apps and fragmented state-by-state regulation.

It’s no surprise, then, that DraftKings recently launched its own exchange-style product, DraftKings Predictions. Kalshi and Polymarket are blazing a new trail, and incumbents are scrambling to adapt. Still, these efforts feel less like innovation and more like a defensive attempt to stay relevant in a rapidly changing landscape.

Looking Ahead: Infrastructure And Forecasting

While attention has centered on consumer-facing platforms, the more durable investment opportunity may lie in the infrastructure that enables prediction markets to function at scale. Companies like CME Group (CME) and Intercontinental Exchange (ICE) already operate some of the most sophisticated derivatives exchanges in the world, providing clearing and settlement across trillions of dollars in notional exposure. Prediction markets are simply another form of derivatives contract, and the institutional plumbing required to support them is immense. For investors, owning the infrastructure rather than the product has historically been a more stable and profitable strategy – particularly at the emergence of, dare I say, a new asset class.

Prediction markets are also proving to be one of the most effective forecasting tools available. Unlike polls, analyst forecasts, or media narratives, prediction markets aggregate real capital at risk, forcing participants to express conviction rather than opinion. Markets update in real time as information changes, producing a constantly evolving view of future outcomes. While some may argue this is already the role of stock prices, event-driven contracts strip away most external variables and focus exclusively on the binary outcome. For investors navigating an increasingly complex stock market, that clarity can be powerful.

Wrapping It Up

Prediction markets represent a structural shift in how risk is priced, expressed, and transferred. What began as niche platforms for political forecasting are rapidly converging with traditional investing and sports betting. Distinguishing between gambling and investing is no longer straightforward. At the same time, prediction markets are becoming indispensable forecasting tools for everything from elections to Federal Reserve decisions. As these lines continue to blur, investors will need to be increasingly thoughtful as they build their portfolios.