Institutional investors are entering prediction markets as the introduction of block trades and bespoke contracts, alongside enhanced regulatory access, reshapes a sector that has long been dominated by retail traders, Bernstein notes.
Bernstein analysts noted in their May 4 report that prediction markets are transitioning from platforms primarily used by individual traders to sophisticated instruments utilized by institutional investors for managing event-related risks. Investors can use these markets to manage risks associated with particular events—such as trade disputes, political elections, international conflicts, and commodity-related occurrences—through agreements that resolve based on binary outcomes.
A significant achievement for Kalshi was the execution of its initial customized institutional block trade in late April, which Bernstein emphasized as a major milestone. These transactions, which are privately negotiated and typically involve large volumes, are commonly utilized by institutional counterparties.
Greenlight Commodities facilitated a trade involving a Houston-based environmental hedge fund, with Jump Trading providing liquidity. The bespoke contract was linked to California’s May carbon allowance auction clearing price, demonstrating how prediction markets can be adapted to meet specific institutional hedging requirements.
Bernstein analysts noted that implementing block trading mechanisms and customized contracts may increase involvement among investors aiming for specific risk exposure related to events.
The report highlighted Kalshi’s collaboration with Clear Street, which provides institutional investors with regulated entry into prediction-market contracts, now available in conjunction with conventional investments like equities, futures, and derivative instruments.
Retail continues to dominate prediction markets
Although there has been increased institutional involvement, the prediction market sector is still predominantly shaped by individual traders. According to a recent report from Bitget Wallet and Polymarket, over 80% of the $25.7 billion in prediction market activity during March was driven by individual traders.
Bernstein highlighted that increased institutional involvement might serve as a driving force for the sector’s expansion, forecasting that the prediction market sector may reach a value of one trillion dollars within the next ten years.
Prediction-market trading volumes hit $25 billion in March, according to Bitget Wallet.
The regulatory environment is still inconsistent. Kalshi operates under federal oversight by the Commodity Futures Trading Commission, enabling institutions to engage in event contract trading via established infrastructure. Polymarket is re-entering the US market via authorized pathways while regulatory and political oversight of prediction markets is intensifying.
Conclusion
Bernstein’s report indicates prediction markets are transitioning into a new stage, evolving from retail speculation toward institutional applications such as macro-focused and event-related risk hedging. Institutional strategies involving block trades and tailored contracts might improve market depth and entice major participants, though the industry’s trajectory will rely on clear regulatory guidelines, strong compliance systems, and ongoing institutional engagement.