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Read Full BioRobinhood Markets could expand its footprint in the growing prediction market sector through an acquisition if the right opportunity presents itself.
Robinhood already offers event contracts through a partnership with Kalshi. Piper Sandler analysts estimate that the trading app accounts for 25% to 35% of Kalshi’s trading volume.
JB Mackenzie, Robinhood’s vice president and general manager of futures and international, told Reuters:
“We as a firm are going to be looking to see if there is an acquisition that’s available. I’m always looking to see if there’s something of interest, if there is, we’ll pursue it and see if it’s the right fit.”
“That being said, what we also know is we have really good engineers that build great products here. So what we’re going to do is try to balance the two.”
Polymarket & Kalshi Dominate the Market
Mackenzie did not mention any specific names or even whether the company had identified any potential targets. The duopoly of Polymarket and Kalshi has primarily controlled the vast majority of the prediction market space.
Polymarket, valued at over $8 billion, has controlled the majority of the global market. At the same time, Kalshi has experienced exponential growth in the US.
However, Polymarket and Kalshi’s paths are about to cross as the former prepares to reenter the US, while the latter expands internationally. A recent funding round valued Kalshi at over $5 billion, and the platform has since expanded to more than 140 countries. The platform claims to capture over 60% of the global trading volume, even before it expands.
Both of those will likely be well beyond Robinhood’s budget, although there are plenty of other players in the market. In August, sports-focused prediction market Novig raised $18 million in funding. The platform claimed to be the fastest-growing sports prediction market in the US.
In the same month, The Clearing Company, a startup founded by former Polymarket employees, also raised $15 million in seed funding. The company plans to launch a regulated, on-chain prediction market that will be available in the US.
Another option could be Railbird Exchange, although rumors this summer claimed DraftKings is looking to acquire it.
Prediction Markets Challenging Traditional Sportsbooks
Prediction markets have experienced a surge in popularity over the past year. They gained significant traction as users traded vast sums on the outcome of the US presidential election. While Polymarket agreed to exit the US market in 2022, the platform is currently positioning itself to make a return.
Since then, sports have become an increasingly important vertical, with prediction markets firmly moving into competing with more traditional sportsbooks. This week, Kalshi’s recent funding round led to shares in Flutter and DraftKings tumbling.
In addition to offering typically better prices and a market for gamblers who face legal or commercial restrictions, prediction markets also have several other structural advantages compared to sportsbooks.
The event contracts offered are not classified as bets in the laws of many countries, including the US, which results in the likes of Polymarket and Kalshi paying far less in tax than sportsbooks like DraftKings.
However, that situation may not hold forever. Several legal challenges are currently pending that aim to classify event contracts as wagers. However, despite the regulatory uncertainty, the flow of investment capital into the space shows no sign of abating.
For Robinhood, already driving a large share of Kalshi’s trades, buying its own prediction exchange could turn a quiet partnership into a full-scale market disruption.
