Why Prediction Markets Are Outperforming Crypto Amid the Bear Market

The cryptocurrency market in 2025 has been a textbook bear case. After a brief rally driven by regulatory optimism and institutional adoption, Bitcoin and altcoins have cratered, with the total market cap collapsing from a $4.4 trillion peak to a 20% drawdown by mid-November 2025. Bitcoin's retreat below its 200-day moving average-a critical support level since 2022-has signaled a deepening crisis of confidence, particularly for speculative altcoins, which show no signs of attracting fresh capital according to the latest crypto news. Yet, amid this turmoil, prediction markets like Kalshi and Polymarket have defied the trend, surging in volume and user adoption. For contrarian investors, this divergence raises a critical question: Why are regulated prediction platforms thriving while crypto languishes?

Regulatory Clarity: The Cornerstone of Trust

Prediction markets have long been dismissed as niche or speculative, but 2025 has proven otherwise. Kalshi, the first U.S.-regulated prediction market under the CFTC, has leveraged its compliance edge to dominate the sector. In October 2025 alone, Kalshi recorded $4.4 billion in trading volume, surpassing Polymarket for the first time-a milestone driven by its ability to attract U.S. retail and institutional investors who previously avoided unregulated crypto platforms according to financial reports. Regulatory clarity has not only reduced legal ambiguity but also acted as a magnet for capital. As stated by a report from CoinLaw.io, Kalshi's partnership with Robinhood-a non-crypto-native brokerage-has further lowered barriers to entry, enabling mainstream users to trade event-based derivatives without navigating complex blockchain infrastructure according to CoinLaw.io.

In contrast, the broader crypto market remains mired in regulatory uncertainty. While the launch of spot ETFs like the Canary XRP ETF (Nasdaq: XRPC) and Marinade Solana ETF (Nasdaq: SOLC) has injected institutional-grade liquidity into digital assets, these products represent a narrow slice of the market. Most crypto projects lack the same level of oversight, leaving investors exposed to volatility and fraud. Prediction markets, by contrast, are increasingly seen as a safer alternative for those seeking structured, regulated speculation.

Mainstream Accessibility and Token Incentives

Kalshi and Polymarket have also outperformed by addressing two key pain points: accessibility and user incentives. Kalshi's integration with Robinhood has been a game-changer, allowing users to trade outcomes on sports events, elections, and macroeconomic data using traditional fiat accounts. This approach mirrors the simplicity of stock trading, bypassing the need for crypto wallets or blockchain literacy according to CoinLaw.io. Meanwhile, Polymarket has taken a different but equally effective route. Its upcoming POLY token airdrop-a strategic move to reward early users-has driven a 93.7% surge in October trading volume to $3.02 billion, with sports betting and election markets accounting for much of the growth according to CoinLaw.io.

Token-based incentives are proving to be a powerful tool for user acquisition. By rewarding liquidity providers and active traders, platforms like Polymarket are creating flywheels of engagement. As noted in a Medium analysis, Polymarket's hybrid model-combining decentralized infrastructure with regulatory compliance-positions it to capture both crypto-native and traditional investors according to Monolith.vc. This dual appeal is a stark contrast to the broader crypto market, where token incentives often lack clear utility or governance value.

Prediction Markets as Alternative Investments

Beyond regulatory and technical advantages, prediction markets are gaining traction as a novel asset class. In a bear market, investors are increasingly seeking tools to hedge against macroeconomic risks. Prediction markets offer precisely that: the ability to bet on outcomes ranging from interest rate decisions to geopolitical events. For example, Kalshi's sports betting markets generated over $1 billion in a single week in October 2025, demonstrating their utility as both entertainment and financial instruments according to CoinLaw.io.

Moreover, prediction markets are diversifying portfolios in ways crypto cannot. While Bitcoin and altcoins are highly correlated with broader risk assets, prediction markets derive value from information asymmetry and event-driven volatility. This uncorrelated nature makes them attractive to risk-averse investors. As highlighted by Monolith.vc, platforms like Kalshi and Polymarket are also attracting infrastructure providers such as UMA Protocol, which underpins subjective markets and could unlock new use cases in 2026 according to Monolith.vc.

The Contrarian Case: Why Prediction Markets Matter

For investors, the lesson is clear: the 2025 bear market has exposed crypto's vulnerabilities while accelerating the maturation of prediction markets. Kalshi's regulatory-first approach and Polymarket's token-driven growth are not just surviving the downturn-they are thriving. These platforms are building bridges between traditional finance and blockchain, offering structured, accessible, and regulated ways to trade real-world events.

The risks, of course, remain. Prediction markets are still nascent, and their long-term utility depends on sustained user adoption and regulatory stability. However, for contrarians willing to bet against the crypto crowd, the case for prediction markets is compelling. As the sector evolves, early movers like Kalshi and Polymarket are likely to cement their dominance, turning speculative bets into a cornerstone of modern finance.