Prediction Markets Not a Silver Bullet for Crypto Investors
Prediction markets are gaining popularity among some crypto investors, but experts warn against replacing spot market investments with them.
Kalshi offers prediction contracts that pay out if a specific outcome occurs, including those tied to a given cryptocurrency's price on a given date. For example, buying a contract for Ethereum to be 'above $2,500 by December' would collect $1 per contract bought for about $1.
The problem with this strategy is that being wrong is usually worse with prediction market contracts than with spot investments. If Ethereum triples in value during the next three years, whoever owns the coin directly will capture the threefold return in their account. On the other hand, whoever bought a prediction market contract for Ethereum to be 'above $2,500 by December' will collect $1 per contract they bought for about $1.
The same applies to perpetual futures, which are another product offered by Kalshi. These contracts never expire and follow the price of the underlying asset without ever settling or expiring. They also add the ability to use leverage, but this can be hazardous. In June, about $1.8 billion of leveraged positions were liquidated by exchanges within 24 hours due to Ethereum's price falling.