Did Prediction Markets Cause the Crypto Crash?
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On Kalshi, the wildly popular prediction market, bettors assigned just a 32% chance that bitcoin will cross $100,000 before October 2027. The crypto currency was at $126,000 last October and now sits at half that level.
Kalshi, by contrast, just doubled in value in four months to $22 billion. Its prediction market rival Polymarket is out raising funds, reportedly seeking a valuation of $20 billion, up from $9 billion in October.
Monthly trading volume on the two markets rose from $151 million in March 2025 to about $20 billion in the month just ended, according to data firm Artemis. Crypto trading volume is the lowest it has been since January 2024. It should be no surprise that prediction market traders don’t see much of a future for crypto.
You get where I’m going here. Prediction markets have replaced crypto as the place to go for adrenaline-driven trading. Why put your money on a meme coin that is some variation of a pump-and-dump stock scam when you can try your luck betting on war and sports?
You can see it in the data. Prediction market volume began to surge last fall, roughly doubling in September and again in October to $8.5 billion. Bitcoin’s price peaked that month.
Nothing is that simple, of course. Crypto trading volume, for example, dwarfs betting volume on prediction markets.
But all those traders jumping into prediction markets had to come from somewhere, and people definitely are not trading crypto like they were. My colleague Yueqi Yang this week chronicled the grim scene in the industry, which includes layoffs and companies going into survival mode.
Crypto exchanges are also pivoting to new businesses, most notably prediction markets. Coinbase, Crypto.com and Gemini have all started their own prediction markets, though their volume is still a small fraction of what takes place on Kalshi and Polymarket.
One of the many ironies is that crypto has enabled prediction markets. Many bets are done in stablecoins, crypto currencies pegged to the dollar. It’s the least sexy part of the crypto industry, but one that actually has some use beyond wild speculation.
Another irony is that crypto has been shunted aside even while it has a friend in the White House. Maybe the first family’s crypto shenanigans made investors sour on the market, especially because almost everyone who invested with the Trumps lost money.
It’s not just crypto that has suffered from the rise of prediction markets. Big sports-betting sites FanDuel and DraftKings have also lost business. Sports betting accounts for more than 50% of the volume on the two prediction markets and is largely responsible for their staggering growth beginning last fall.
Both FanDuel and DraftKings recently missed earnings estimates, and their stocks, which peaked in September, hit multiyear lows. Both are building their own prediction markets.
The best hope for rebounds in crypto prices and for FanDuel and DraftKings might be the prediction markets’ legal issues. Kalshi and Polymarket are in an intensifying fight with state regulators and federal lawmakers, who are seeking to stop them from offering sports betting, which is regulated by the states. Regulated sports betting is a major source of tax revenue for some of the states, so it is no surprise they are fighting back.
Following the well-worn path taken by the crypto and tech industries, Kalshi and Polymarket moved ahead with sports betting without asking for regulatory approval. They later got backing from federal regulators.
In recent weeks, the states have intensified their battle against Kalshi and Polymarket. Arizona last month filed criminal charges against Kalshi, accusing it of running an illegal gambling operation, and a Nevada judge issued a 14-day restraining order against the company. The fight with the states is expected to land in the Supreme Court.
In Washington, a bipartisan bill banning sports betting on prediction markets was introduced in the Senate last week. Federal prosecutors in Manhattan are meanwhile exploring whether certain bets on prediction markets have violated insider trading and other laws, CNN reported this week.
It appears you can’t bet on the fate of prediction markets in the markets themselves. But if they start to lose their regulatory battles, it might be time for investors to go back to crypto—or to invest in FanDuel and DraftKings again.
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