Kraken Aims to Spur Crypto Bull Cycle with 2026 Prediction Market Launch, IPO Push

Kraken, one of the world's largest cryptocurrency exchanges, plans to launch prediction markets in 2026 as part of its broader expansion strategy. The exchange has already filed for a U.S. initial public offering (IPO), which could attract fresh capital from traditional finance (TradFi) investors. Kraken's CEO, Dan Tapiero, argued that the exchange's IPO and increased M&A activity will help reignite a mid-stage bull cycle in crypto.

The prediction market segment has been gaining traction, with companies like Coinbase and Crypto.com also making moves to enter the space. Crypto.com recently announced the hiring of a quant trader to focus on event-based market-making, particularly in the sports sector. This development highlights the growing intersection between digital assets and event-driven financial contracts.

Meanwhile, Coinbase has taken a more aggressive approach by acquiring The Clearing Company, a prediction markets startup. The acquisition is part of Coinbase's effort to expand its offerings beyond crypto trading and into a broader "Everything Exchange" model that includes equities and prediction markets. The Clearing Company has already applied to become a Derivatives Clearing Organization, a step that could further legitimize the sector.

Why Prediction Markets Are Gaining Momentum

Prediction markets are attracting attention due to their potential to serve as an alternative to traditional betting and gambling platforms. Unlike sportsbooks, which profit from customer losses, prediction markets operate by matching opposing views on event outcomes. This structure offers a more transparent and market-driven approach to forecasting, with liquidity provided by internal trading desks or market makers.

Crypto.com's recent hiring decision underscores this trend. The company's job posting for a quant trader revealed that the role involves buying and selling financial contracts tied to sports events, with the internal desk taking the opposite side of customer positions. This model is similar to how some prediction market platforms already operate, where house-backed liquidity ensures tight spreads and constant order book depth.

However, the model is not without controversy. Critics argue that internal trading desks effectively place the platform operator on the opposite side of customer trades, potentially creating conflicts of interest. Crypto.com has stated that its internal market maker does not have access to proprietary data or customer order flow before other participants, but transparency remains a key concern for regulators and users alike.

How the Regulatory Landscape Is Evolving

The regulatory environment for prediction markets is still developing, but some companies are taking steps to align with traditional financial frameworks. The Clearing Company, for instance, has applied to become a Derivatives Clearing Organization with the U.S. Commodity Futures Trading Commission. This move could facilitate the integration of prediction markets into existing financial systems, offering a more regulated and secure environment for users.

Coinbase has also highlighted the potential tax advantages of prediction markets compared to traditional gambling platforms. The company pointed to a proposed tax provision in President Donald Trump's "One Big Beautiful Bill," which would reduce the deductibility of gambling losses. Prediction markets, which rely on contract-based structures similar to derivatives, could be treated differently under the tax code, offering a more efficient and legal alternative.

As regulatory clarity increases, more companies are expected to enter the prediction market space. Polymarket, a decentralized platform built on the Polygon network, and Kalshi, a centralized platform operating under U.S. regulatory oversight, are already major players. Publicly traded companies like DraftKings are also exploring entry into the sector, with plans to offer crypto-linked contracts in the future.

What This Means for Investors

The growing interest in prediction markets is not limited to exchanges and startups. Institutional investors are also showing signs of confidence. HashKey Capital, a leading crypto investment firm, recently secured $250 million for its fourth crypto-focused fund, with a target size of $500 million. The fund will focus on infrastructure and scalable use cases, including prediction markets.

Kraken's IPO, if approved, could further boost investor confidence in the crypto sector. The exchange raised $800 million in funding earlier this year and has a valuation of $20 billion. With Bitcoin still in a mid-stage bull market, according to some analysts, prediction markets could benefit from the influx of new capital from TradFi investors.

However, not all analysts are bullish on the outlook. Fidelity's director of global macroeconomic research, Jurrien Timmer, warned that 2026 could be a down year for Bitcoin, with a potential local bottom around $65,000. This uncertainty highlights the risks associated with prediction markets, which are closely tied to broader crypto and financial market trends.

As the sector continues to evolve, investors will need to carefully assess the regulatory and market risks involved. While prediction markets offer a new frontier for trading and forecasting, their long-term success will depend on how they integrate with existing financial systems and attract a broader investor base.