This year's crypto Thanksgiving conversation was actually about prediction markets

Link copied

This year's crypto Thanksgiving conversation was actually about prediction markets.

crypto :: 2hrs ago :: source - yahoo finance

By Hamza Shaban

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

What we're watching
What we're reading
Economic data releases and earnings

Americans gathering at the Thanksgiving table to talk about cryptocurrency has been a holiday staple since 2017. This year, a new innovation took its place: prediction markets.

The financialization of the US economy can sometimes give you brain freeze, and discussing the idea over Thanksgiving leftovers might be triggering for temperamental uncles.

But prediction markets? That's easier to digest.

Parlays and meme coins have become a piece of millennial and Gen Z lore, with these concepts crossing into older generations too. But prediction markets aim to widen the wagering user base and redefine what a wager even is.

Platforms like Kalshi and Polymarket are popularizing prediction markets beyond sports, giving users the ability to bet on things like the release date of this year's Spotify Wrapped, who Trump will nominate to lead the Fed, and the number of posts in a given week Elon Musk will send out on his social media platform, X.

On Wednesday, investors rushed into Robinhood (HOOD), pushing the stock up 11%, after the trading platform announced an expansion of its prediction markets through a partnership with Susquehanna International.

The move builds on Robinhood's strategy to cater to highly engaged retail investors and bolster its in-house offerings as a one-stop shop for all things finance.

Robinhood already partners with Kalshi to offer prediction market contracts. Since the offering's launch last year, more than 1 million users have traded 9 billion contracts, Robinhood has said, generating $100 million in annualized revenue.

Analysts say the Susquehanna deal will allow Robinhood to supplement more event contracts directly.

And in this rapid expansion, these platforms also risk a wider backlash and have prompted new questions from financial analysts.

A new report from Bank of America last week warned of the emerging risks brought on by the rapid growth of prediction markets and mobile sports betting.

"Easy access and gamified interfaces encourage frequent and impulsive wagers, which can lead to overextension of credit and rising loan defaults,” wrote a team of analysts, including Mihir Bhatia.

“For investors this convergence of entertainment and speculative finance signals heightened behavioral risk that could pressure credit quality, increase delinquencies, and impact earnings for issuers and subprime lenders.”

Companies promoting these types of wagers see a nascent market and a massive untapped reservoir of potential users and money. Bank of America's team cautioned that these growth tactics may translate into rising credit balances and increase the severity of losses for lenders.

"Liquidity stress indicators are mounting — one in four bettors report missing bill payments and nearly half lack adequate emergency savings according to a U.S. News survey," the firm wrote.

"Beyond individual behavior the nature of these trends could pressure credit quality across portfolios, challenging underwriting models and risk pricing. Net-net, online betting markets introduce a new risk for lenders, one that they have not had to deal with historically and underwriting models may need to be adapted."

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.