Prediction market notional volume could balloon tenfold to a staggering $5 trillion in just three to five year, according to ARK Investment Management.
That’s far beyond even some of the most ambitious forecasts projecting that turnover on all-or-nothing exchanges will swell to $1 trillion or slightly more by 2030. ARK says prediction markets are going mainstream, highlighting recent reports indicating that Facebook owner Meta Platforms is working on its yes/no platform. The money manager notes entrenched operators can be disrupted if they don’t make the investments needed to capture adequate share of the projected volume surge.
“Kalshi has grown from almost no market share two years ago to ~68% of weekly notional volume today, thanks largely to its regulatory compliance in the US,” says ARK analyst Nicholas Grous. “Since mid-2024, Polymarket’s share has dropped from 97% to ~25%, suggesting that incumbents can lose share in successive event cycles and that those building the infrastructure necessary for the next event cycle are more likely to gain share.”
Florida-based ARK is an investor in closely held Kalshi.
ARK Sees Prediction Markets Evolving Beyond Sports
A new report from Jefferies indicates prediction market volume surged 80% last month with 89% of that turnover attributable to sports derivatives or sports-heavy combo bets, also known as parlays, confirming the World Cup is a boon for yes/no exchanges.
ARK’s Grous acknowledges the potency of the soccer tournament, but notes the firm’s volume forecast isn’t sports-centric. Rather, it accounts for growth in other event contracts.
“In our view, the upside is likely to come not from sports but from financial, economic, and political contracts that give retail investors direct exposure to real-world outcomes,” says the analyst.
Outside of sports, retail traders are already proving to be fans of political derivatives, potentially signaling another volume surge awaits prediction markets as the November midterm elections near.
Infrastructure Maturity Matters
While $5 trillion is actually small in the context of the expected future trajectory of the broader global derivatives market, it’s massive in the current context of prediction markets.
Getting there requires infrastructure investments, underscoring why companies such as DraftKings are bringing exchange functionality in-house and why established competitors like Polymarket work with and are backed by operators of traditional financial exchanges.
“When the underlying infrastructure matures, and if institutional participation begins in earnest, the market opportunity could be profound in the context of the potential future approximately $900 trillion in notional volume in the financial derivatives market,” concludes Grous
