As we cross the midpoint of January 2026, the final tallies for the previous year have confirmed a seismic shift in global finance: prediction markets are no longer a niche curiosity for political junkies and crypto-enthusiasts. In 2025, the industry didn't just meet the ambitious $40 billion volume projection set by analysts—it shattered it, recording a staggering $63.5 billion in total notional volume.
This 302% year-over-year explosion has placed prediction markets on a direct collision course with the $300 billion global sports betting industry. What was once seen as "gambling for nerds" is now being recognized as a sophisticated "Information Finance" ecosystem. Driven by regulatory breakthroughs in the United States and massive retail distribution via major brokerage apps, the probability of prediction markets becoming a permanent, dominant fixture of the financial landscape has moved from a "maybe" to a near-certainty.
The Market: What's Being Predicted
The scope of prediction markets expanded dramatically in 2025. While election cycles traditionally provide the largest volume spikes, the market successfully pivoted to "evergreen" categories including economic data, climate events, and, most notably, sports. Leading the charge are Kalshi, the first regulated U.S. prediction exchange, and Polymarket, the decentralized giant that remains a powerhouse in international and crypto-native circles.
By the end of 2025, the distribution of volume shifted significantly toward regulated event contracts. Kalshi emerged as the surprise volume leader in the final quarter, finishing the year with $23.8 billion in volume, a more than 1,100% increase from 2024. Much of this growth came from their expansion into sports event contracts, which allowed users to trade on the outcome of NFL and NBA games with the transparency and regulatory oversight of a financial derivative rather than a traditional sportsbook.
Meanwhile, Polymarket maintained its relevance by recording $22.5 billion in volume. Despite losing its dominant market share to regulated U.S. competitors, Polymarket’s liquidity in non-U.S. political events and "culture" markets remains unmatched. The barrier to entry for the average investor vanished in March 2025 when Robinhood (NASDAQ: HOOD) launched its "Prediction Markets Hub" in partnership with Kalshi, instantly putting event contracts into the pockets of over 24 million retail traders.
Why Traders Are Betting
The 2025 surge was fueled by a fundamental realization among participants: prediction markets offer better "yield" on information than almost any other asset class. Unlike the stock market, where a company's price is influenced by thousands of variables from interest rates to management changes, a prediction market contract on the Federal Reserve's next rate hike or a specific legislative vote has a clear, binary resolution.
Traders are also increasingly using these markets as a hedge. For example, in late 2025, businesses sensitive to hurricane damage used Interactive Brokers (NASDAQ: IBKR) and its ForecastEx platform to hedge against climate risks. By buying "Yes" contracts on specific weather events, they created a form of ad-hoc insurance that was more flexible and faster-paying than traditional policies.
The "whale" activity has also shifted from anonymous crypto wallets to institutional desks. The strategic $2 billion investment by Intercontinental Exchange (NYSE: ICE) into Polymarket in late 2025 signaled that the world's most powerful financial institutions now view the data generated by these markets as a high-fidelity signal for risk management.
Broader Context and Implications
The path to $63.5 billion was paved by a landmark regulatory victory in May 2025. After years of litigation, the CFTC officially dropped its appeal against Kalshi, effectively greenlighting the listing of election and political derivatives in the U.S. This decision removed the "grey market" stigma that had plagued the industry since the early days of Intrade and PredictIt.
This regulatory clarity has allowed prediction markets to begin eating into the market share of traditional sportsbooks like DraftKings (NASDAQ: DKNG) and Flutter Entertainment (NYSE: FLUT). Because event contracts on exchanges like Kalshi are structured as derivatives with lower "vig" (the house take) than traditional sports betting "juice," savvy bettors are migrating toward prediction markets for better pricing.
Beyond the money, these markets have proven to be the most accurate "source of truth" in a fragmented media landscape. Throughout 2025, prediction market prices consistently front-ran traditional polling and expert commentary on everything from the European central bank decisions to the success of major film releases.
What to Watch Next
As we look toward the rest of 2026, the primary catalyst on the horizon is the U.S. Midterm Elections. Early volume for "Control of the House" and "Control of the Senate" contracts is already outpacing the levels seen at this stage in the 2022 and 2024 cycles. Analysts are now projecting that the industry could surpass the $100 billion annual volume milestone by the end of this year.
The next major milestone to monitor is the potential integration of event contracts into more mainstream retirement and savings products. There is growing talk on Wall Street about "Event-Linked ETFs" that would allow institutional investors to gain exposure to a basket of prediction market outcomes as a non-correlated asset class.
Furthermore, keep an eye on the "cross-pollination" between sports betting and prediction markets. As more jurisdictions clarify the rules, expect traditional sportsbooks to launch their own exchange-style interfaces to compete with the low-fee models of Kalshi and Robinhood.
Bottom Line
The story of 2025 was the year prediction markets grew up. By surpassing the $40 billion projection and hitting $63.5 billion, the industry has proven that the appetite for "trading on the truth" is massive and globally distributed. The integration into platforms like Robinhood has democratized access, making the act of forecasting as simple as buying a share of stock.
Ultimately, prediction markets are evolving into the world’s most efficient central nervous system. They don’t just offer a place to bet; they provide a real-time, financially-backed consensus on the direction of our society. As we head deeper into 2026, the question is no longer whether prediction markets will rival sports betting, but how long it will take before they surpass it.
This article is for informational purposes only and does not constitute financial or betting advice. Prediction market participation may be subject to legal restrictions in your jurisdiction.
PredictStreet focuses on covering the latest developments in prediction markets.
Visit the PredictStreet website at https://www.predictstreet.ai/.
