Flow Analysis: The Prediction Market ETF Filing Surge and Liquidity Drivers

The race for the first prediction market ETFs has turned into a sprint. On February 17, ETF issuers Bitwise and GraniteShares filed competing applications with the SEC, following Roundhill's filing just three days earlier on February 14. Each plan seeks to launch a suite of 6 ETFs tied to the 2028 presidential election and 2026 congressional races, marking a direct attempt to monetize the sector's explosive growth.

That growth is quantifiable. Total notional trading volume across the industry reached over $44 billion in 2025. This surge from a base of roughly $15.8 billion in 2024 represents a more than 180% increase, creating the deep, liquid markets that now attract institutional scrutiny. The volume boom is concentrated, with Polymarket and Kalshi generating around 85%–90% of the total, establishing a stable, high-liquidity core.

This institutional interest is no longer theoretical. In January 2026, Goldman Sachs CEO David Solomon disclosed that he had met with Polymarket and Kalshi to explore the bank's potential engagement. This high-level outreach follows a broader 2025 shift where volumes rose sharply and regulatory clarity improved, making the sector's probability signals too compelling for major banks to ignore. The filing surge is the next logical step in that institutionalization.

Product Mechanics and Key Liquidity Sources

The proposed ETFs would function through binary event contracts. Each fund holds these derivatives, which settle at either $1 if the predicted outcome occurs or $0 otherwise. The structure is designed for simplicity and direct exposure to the event's probability. Critically, the fund resets after each election cycle, rolling its assets into the next set of contracts. For example, a 2028 presidential ETF would transition to the 2032 cycle, maintaining the investment vehicle's focus on political outcomes.

This product relies entirely on the massive, pre-existing liquidity of the underlying prediction markets. The primary sources are the high-volume sports and economics markets on the two dominant platforms, Kalshi and Polymarket. These two platforms generated around 85%–90% of the total $44 billion in notional volume across the entire industry in 2025. This concentration provides the deep, liquid foundation necessary for an ETF to trade efficiently.

The scale of daily trading is staggering, particularly in sports futures. The 2026 NBA Champion contract saw $262.3 million in total volume, with over $1.4 million in activity just in the past 24 hours. This level of daily flow, driven by major events like the NBA season, ensures the underlying markets have the continuous bid-ask depth that would support ETF creation and redemption.

Catalysts, Risks, and Forward Flow Metrics

The paramount catalyst for any launch is SEC approval. The agency has yet to act on any of the three competing ETF filings from Roundhill, Bitwise, and GraniteShares. The process is now in motion, but the timeline and outcome remain uncertain. The CFTC's recent withdrawal of a ban on political event contracts provides a positive regulatory signal, but the SEC's stance on these specific financial products is the final gate.

Regulatory pressure from states poses a significant risk. While federal oversight has eased, state-level challenges are mounting. Maryland has issued cease-and-desist letters against platforms like Kalshi, and Nevada has proposed bans on sports prediction markets. This patchwork of state laws creates legal uncertainty and could fragment the underlying market liquidity that the ETFs depend on.

For the underlying asset to remain healthy, flow metrics must sustain the 2025 boom. The industry's annualized volume of over $44 billion set a new benchmark. Investors should monitor monthly trading volume and user growth on leading platforms like Kalshi and Polymarket. Sustained flows above that $44 billion annualized level are critical to proving the market's depth can support a new, liquid ETF product.