Prediction markets: Bernstein sees prediction markets becoming a $10Tn annual-volume financial-market category by 2035E

Overview

This primer frames prediction markets as exchange-traded financial instruments rather than conventional sportsbook wagers. Bernstein’s core thesis is that a sports-led adoption cycle, broader distribution, institutional infrastructure and expansion into financial and event-risk contracts can create a much larger market, although U.S. sports-contract regulation remains unsettled.

Core views

Bernstein argues that prediction markets should be understood as exchange-traded binary options: a contract pays $1 if a defined event occurs and $0 otherwise, so a $0.60 contract price represents a 60% market-implied probability. Unlike a sportsbook, participants trade with one another on an order book rather than against a house; positions can be traded before settlement, and the venue earns transaction fees rather than taking a house position. The report sees this structure as allowing price discovery, continuous trading and direct exposure to a specific event or outcome. The report forecasts total prediction-market volume rising from about $50Bn in 2025 to about $300Bn in 2026 year-to-date through August, about $410Bn in 2026E and about $10Tn by 2035E, implying roughly 70% CAGR over 2025-35E. It attributes the 2026 acceleration to short-duration crypto and commodity markets and a FIFA World Cup-led sports inflection. Sports is expected to remain the retail entry point but decline from about 61% of volume in 2025 to about 38% in 2035E, or about $3.6Tn. Financial assets—crypto, equities and commodities—are forecast to grow at about 93% CAGR to about $4.7Tn and 49% of 2035E volume; economics, politics and related event markets are expected to reach about $1.3Tn, or 14%. Bernstein’s market-expansion case rests on customer acquisition rather than merely shifting existing sports bettors. About 80% of Kalshi users reportedly had not used a sportsbook app, and overlap between DraftKings Predictions and DraftKings online-sportsbook users was about 1%. The report estimates that 20 states with roughly 150M residents, about 45% of the U.S. population, lack access to open licensed online sportsbooks. Applying behavior from the 30 open-OSB states produces an estimated $130Bn of incremental consumer volume; after assumptions on market-maker participation, Bernstein estimates more than $600Bn of addressable 2026 sports-prediction volume in those states. It further argues that prediction markets may extend beyond this penetration opportunity by bringing in new participants. The report expects non-sports contracts to underpin institutional adoption because they can hedge a precise event rather than a correlated proxy, reducing basis risk. Examples include monetary-policy decisions, legislation, corporate milestones, elections, weather and operational disruptions. Bernstein expects institutional flow to represent about 50% of non-sports volume by 2035E, or about $3Tn and 31% of total market volume. It identifies four adoption drivers: direct hedging, an additional return stream that may be uncorrelated with equities and bonds, potential capital efficiency as margin develops, and regulated venues whose prices provide continuously updated signals. Evidence cited includes institutional block trades, OTC desks, market-making activity, clearing and execution integrations, and institutional data-distribution arrangements. Market structure is central to the report’s investment logic. The value chain includes consumer distribution, the FCM brokerage layer, a DCM exchange, a DCO clearinghouse and market makers. Bernstein believes each additional owned layer adds revenue—brokerage commissions, exchange fees and clearing float—so integration is economically attractive. However, it considers consumer distribution the scarce strategic asset because large funded audiences take time to build. It identifies Robinhood as particularly well positioned, citing its 28Mn funded accounts and ownership or control across its app, FCM and Rothera exchange-and-clearing infrastructure, while it continues to offer contracts from other venues. The report profiles Kalshi, Polymarket and sports-oriented entrants. Kalshi’s monthly volume rose from less than $1Bn in August 2025 to about $40Bn in August 2026, while its global share increased from 35% in 2025 to about 60% in 2026 year-to-date. Polymarket’s international share declined from about 44% to about 22%, but its U.S. product reached about $4Bn monthly volume in August and accounted for about 46% of its combined volume. Robinhood’s event-contract revenue reached $156Mn in 2Q2026, up 50% quarter on quarter and more than tenfold year on year; Rothera generated $17Mn of quarterly revenue after going live in June. DraftKings, Novig and Underdog are described as pursuing exchange ownership to retain more transaction economics and product control. Bernstein separately estimates a current combo-market-making TAM of about $1.94Bn, growing to about $7.5Bn in 2030E and about $15.8Bn-$16Bn in 2035E. The bottom-up estimate assumes about $130Bn annual combo volume, 10% retail participation and a 15% market-maker hold, derived from a 3% edge per leg across roughly five legs. It estimates sensitivity of current TAM at $1.4Bn-$2.2Bn if combo share ranges from 25%-39%. Fees and competition are material: a favorable pass-through or rebate scenario could reduce TAM by about 5%, while a bearish fee-and-competition scenario could reduce it by about 25%. The key limiting factor is regulation of U.S. sports event contracts. Bernstein notes conflicting court interpretations of whether these contracts are federally regulated swaps or state-regulated gambling, with the Ninth Circuit ruling against Kalshi and creating a circuit split with the Third Circuit. The CFTC’s 12 June 2026 proposed revisions to Rule 40.11(a) could clarify the process for evaluating contracts involving gaming and other sensitive activities, but could also prompt additional legal challenges. The report expects 2027 to be a transition year and sees ultimate clarity increasingly shifting into 2028.

Analysis framework

Bernstein first defines the contract and contrasts the exchange model with sportsbook economics. It then sizes sports, financial-assets and other-event TAMs using comparable volume pools, examines user-acquisition and volume data, maps the exchange-to-distribution value chain, profiles major platforms, reviews institutional adoption evidence and assesses the legal framework. The combo opportunity uses a bottom-up calculation based on volume mix, legs, pricing edge and retail participation.

Methodology notes

• Industry AnalysisSupply-demand framework

  Category-specific total-addressable-market sizing

  The report anchors sports, financial assets and other event markets to different comparable pools of activity and applies forecast adoption or penetration assumptions to estimate volume.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Prediction-market value-chain analysis

  The report separates distribution, brokerage, exchange, clearing and liquidity provision to explain where revenue accrues and why vertical integration can improve economics.

• Other

  Bottom-up combo market-making TAM framework

  The report calculates the combo opportunity from total volume, combo share, average legs, per-leg pricing edge and retail share, then tests sensitivity to fees and assumptions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Coinbase (COIN)

  Covered broker and crypto platform distributing prediction-market contracts while relying on Kalshi for exchange and clearing infrastructure.

  Strengths

  Owns the consumer app and Coinbase Financial Markets FCM; has agreed to acquire The Clearing Company.

  Weaknesses

  Does not currently own the Kalshi exchange layer used for its prediction-market offering.

  Comparison

  Less vertically integrated than Robinhood in the report’s prediction-market value-chain comparison.

• Robinhood (HOOD)

  Covered platform viewed as best positioned through consumer distribution and broad vertical integration.

  Strengths

  28Mn funded accounts; controls the app, FCM and Rothera exchange-and-clearing infrastructure.

  Weaknesses

  Continues to depend on third-party venues for part of its contract breadth.

  Comparison

  The report describes Robinhood as the most vertically integrated player among its covered participants.

  Risks

  Regulatory risk to its revenue model, including payment for order flow and crypto trading.

• DraftKings (DKNG)

  Covered sportsbook operator building an owned prediction-market exchange and consumer platform through Railbird.

  Strengths

  Can leverage sportsbook, fantasy-sports and iGaming customers while retaining exchange and distribution economics.

  Weaknesses

  Prediction-market activity remains immaterial relative to core operations and revenue is not separately disclosed.

  Comparison

  Its sports-oriented interface and combo functionality resemble sportsbook conventions more closely than Kalshi’s default experience.

  Risks

  Unfavorable sports outcomes, slower parlay penetration, unfavorable gaming taxation or regulation, delayed state-market regulation and reputational damage.

• Flutter Entertainment (FLUT)

  Covered online-sportsbook operator used as a comparator for sports-betting customer retention and valuation context.

  Comparison

  FanDuel retention trends were broadly comparable with Kalshi and DraftKings in the report’s cohort analysis.

Key data

• Total prediction-market volume~$410Bn in 2026E; ~$10Tn in 2035EBernstein forecasts ~70% CAGR from 2025-35E.
• 2026 volume to August~$300BnVersus ~ $50Bn in 2025; driven by short-duration financial markets and sports activity.
• 2035E financial-assets volume~$4.7TnExpected to represent ~49% of total volume and become the largest category.
• 2035E institutional non-sports flow~$3TnAbout 50% of non-sports volume and ~31% of total prediction-market volume.
• Combo market-making TAM~$1.94Bn currently; ~$7.5Bn in 2030E; ~$15.8Bn-$16Bn in 2035EBased on Bernstein’s bottom-up assumptions.
• Kalshi global share~60% in 2026-YTDUp from 35% in 2025, through August 2026.
• Robinhood event-contract revenue$156Mn in 2Q2026Up 50% quarter on quarter and more than tenfold year on year.

Impact & implications

Bernstein views prediction markets as a new market primitive that can combine sports engagement, direct event-risk hedging and financial trading on common platforms. It expects distribution-rich and vertically integrated participants to capture the greatest strategic value, while market makers, data providers and institutional infrastructure providers benefit as liquidity and product breadth expand.

Risks

• The legal status of U.S. sports event contracts remains uncertain amid federal and state litigation, a circuit split and potential Supreme Court review.
• CFTC Rule 40.11(a) revisions may create both regulatory clarity and new litigation risk.
• Market-maker fees and increased competition could compress pricing edge and reduce combo-market-making economics.
• Sports-focused platforms are especially exposed to adverse federal-preemption, state-enforcement and sports-contract regulatory outcomes.

What to watch

• Developments in the Ninth Circuit, potential Supreme Court review and the timeline for a final resolution of sports-contract jurisdiction.
• CFTC Rule 40.11(a) rulemaking and potential Administrative Procedure Act challenges.
• Whether margin, OTC desks, FCM connectivity, execution tools and data distribution convert early institutional activity into sustained volume.
• Migration of Robinhood flow to Rothera and the development of exchange ownership by DraftKings, Novig and Underdog.
• Growth of financial-assets, KPI and perpetual-futures products relative to sports volume.