Prediction markets are poised to become a mainstream financial instrument as the asset class transitions from speculation to institutional adoption, according to a new report from Citizens.
Prediction market revenues are already approaching a $2bn run rate based on per contract fees, Citizen estimates, with monthly volumes currently at around $10bn across leading venues including Kalshi and Polymarket.
However, the analysts projected this could increase fivefold to reach more than $10bn in annual revenue by 2030 as institutional capital enters the market.
The report argued that prediction markets solve a longstanding inefficiency by allowing investors to express views on discrete events without the cross factor basis risk embedded in traditional hedging instruments.
Binary contracts tied to economic indicators, regulatory decisions or merger outcomes could provide cleaner hedges than sector ETFs or index options, the analysts suggested.
Devin Ryan, Citizens managing director, wrote: “[P]rediction markets appear poised to become a durable and high growth part of global capital markets and financial architecture. Their economic significance is ultimately rooted in the same principle that drove the growth of options and derivatives over the past 50 years — when investors can express views more precisely, markets become more efficient.”
The competitive landscape has broadened significantly over the past year, with regulated exchanges and blockchain platforms now joined by major brokerages, digital asset exchanges and traditional sports betting operators.
Robinhood’s recent acquisition of derivatives exchange MIAX represented what the analysts called a pivotal moment in the sector’s maturation.
Despite rapid growth, prediction markets remain relatively small compared to established financial markets.
The report noted that current monthly volumes of $10bn compare to more than $10tn in US equities markets.
Prediction markets institutional use cases emerging
Citizens identified several institutional use cases that could drive adoption.
Event-driven hedge funds could isolate deal, litigation and regulatory outcomes without embedding beta or duration, while macro funds could hedge inflation prints and policy decisions directly.
Quantitative firms could treat probability curves as high signal inputs for their models.
The report suggested that because these contracts reduce basis risk, they would likely deepen overall hedging capacity rather than cannibalise existing derivatives markets, mirroring how options, swaps and ETFs expanded risk transfer efficiency in previous cycles.
However, the analysts acknowledged several risks remain.
Regulatory uncertainty continues to be the largest constraint, particularly around jurisdictional tensions between US federal and state authorities over sports-linked markets.
Liquidity fragmentation, insider information concerns and outcome ambiguity were also cited as near term challenges.
The report drew parallels to earlier financial innovations including listed options, ETFs and credit default swaps, all of which faced initial scepticism before becoming foundational to market structure.
The analysts suggested prediction markets are following a similar developmental arc, beginning with retail participation before attracting market makers, regulatory formalisation and eventual institutional integration.
Sports and entertainment currently anchor much of the retail liquidity, representing over half of global contract count.
However, the analysts projected non sports markets covering macroeconomic events, regulatory actions and corporate outcomes to grow faster and eventually represent the majority of notional value as institutions enter the space.
Ryan added: “[A]s brokerages, digital asset exchanges, and traditional financial institutions increasingly explore the space, we believe prediction markets will transition from primarily a speculative curiosity today (albeit rapidly growing) to a mainstream financial tool, becoming a widely used instrument for hedging, speculation, and informational insight, which could in turn have profound implications for asset pricing across sectors.”