Growth in Prediction Markets: Regulatory Clearances Fuel Competitive Surge

A major regulatory breakthrough is unfolding in U.S. prediction markets. The Commodity Futures Trading Commission's (CFTC) approvals are clearing the path for mainstream participation in binary event contracts-like "Will Bitcoin hit $200,000 by year-end?" according to Genfinity. This regulatory shift follows a critical surge in trading activity: prediction markets generated $27.9 billion in volume from January to October 2025, peaking at $2.3 billion weekly in October alone. Institutional adoption is accelerating rapidly as hedge funds and market makers use these platforms for probabilistic risk management around elections and regulatory decisions.

Gemini exemplifies this new era. After a five-year regulatory process, it secured a CFTC Designated Contract Market license, becoming the first major crypto exchange to offer compliant prediction markets in the U.S.. The exchange is integrating these contracts into its USD-based platform with mobile app support, directly challenging traditional markets. Meanwhile, Coinbase plans a December 2025 launch of prediction markets and tokenized equities to build an "everything app" rivaling Robinhood and Kraken, which already offer similar products.

Despite these advances, major uncertainties linger. U.S. regulatory challenges persist for tokenized assets and broader crypto adoption, creating friction for smaller platforms. While regulated players like Crypto.com (CDNA) benefit from institutional liquidity and tax advantages, unregulated competitors remain vulnerable to enforcement actions. The CFTC's framework is a foundation-but sustained growth hinges on clarity in areas like tax treatment and custody standards, which remain unresolved. For now, institutional momentum is undeniable, but the path forward depends on resolving these lingering regulatory gaps.

Institutional Momentum and Persistent Frictions

Institutional interest in prediction markets is accelerating rapidly, with 48% of U.S. proprietary trading firms actively evaluating participation, and 10% now trading, according to Acuiti's latest findings. Over a third (35%) of these firms are still contemplating entry, suggesting significant latent demand. This momentum is partly fuelled by growing infrastructure adoption, as tokenized stock transfers jumped 32% in just 30 days, reaching $1.45 billion, reflecting a broader institutional appetite for crypto-linked products amid volatile markets. However, operational challenges remain substantial. Firms consistently cite connectivity issues, wide bid-ask spreads, and complex risk management needs as barriers limiting broader adoption according to trade analysis.

The U.S. leads the global adoption curve, with 75% of its proprietary trading firms either actively participating or evaluating prediction markets, compared to just 37% in Europe. This leadership stems from advanced algorithmic trading capabilities and a more developed crypto ecosystem. Platforms like Coinbase and Gemini are actively capitalizing on this trend, with Coinbase planning a prediction market launch alongside tokenized equities in late 2025, aiming to become a rival "everything app". Despite this institutional push and rapid tokenized asset growth, regulatory uncertainty in the U.S. continues to cloud the landscape. This creates friction for firms looking to scale operations confidently, as unclear rules add compliance costs and potential legal risks.

Looking ahead, the outlook remains cautiously optimistic. Over 40% of institutional firms anticipate prediction markets will become a significant component of their trading strategies within the next three to five years, signaling long-term conviction despite current hurdles. This forward-looking view underscores the perceived growth potential. Yet, the path to mainstream institutional integration hinges on overcoming tangible obstacles: reducing execution frictions like spreads and connectivity, developing robust risk management frameworks, and, crucially, achieving clearer regulatory guidance. Success will depend on resolving these operational and legal gaps, not just sustained market enthusiasm.

Strategic Positioning in Prediction Markets

Crypto.com's CFTC-regulated CDNA platform has carved a distinct edge by combining tax efficiency with institutional-grade liquidity infrastructure. Its partnership with market makers enables $2.3 billion weekly trading volumes in peak periods, outpacing unregulated rivals through legal clarity and deep order books. This regulatory shield aligns with the Coalition for Prediction Markets (CPM)-backed by Kalshi, Coinbase, and Robinhood-which pushes for federal frameworks to override fragmented state rules. Kalshi's valuation doubling to $11 billion reflects investor confidence in this unified approach.

However, institutional adoption faces friction points. Algorithmic trading desks report connectivity gaps between prediction platforms and traditional execution systems, while spread compression remains elusive for niche contracts. More critically, the CFTC retains authority to ban contracts "contrary to public interest" under the Commodity Exchange Act according to KPMG analysis, creating regulatory whiplash risks. Taxation ambiguities further erode margins, as unclear IRS guidance forces exchanges to absorb compliance costs.

The CPM's advocacy may mitigate fragmentation, but its success hinges on navigating overlapping gambling law objections. Until then, platforms like Crypto.com's CDNA will balance growth against recurring compliance uncertainty.