Prediction markets are the vampire attacking crypto

In the 1920s era of Prohibition, gambling was almost entirely banned in the United States — horse-racing tracks in Kentucky and Maryland were about the only places risk-seekers could legally place a bet.

Even Nevada didn’t legalize casinos until 1931. 

But betting your life savings on stocks? With 10:1 leverage? That was considered “investing.”

JD Turner explains the history in Boom and Bust: When margin lending first became common in the 1920s, stock market investing was transformed “from a staid and technocratic profession into an activity that could appeal to compulsive gamblers who had few other outlets.”

The result was perhaps predictable: With nowhere else to get their fix, gamblers turned the stock market into a casino, fueling the speculative mania that ended in the 1929 crash.

A century later, crypto markets provided the same outlet.

With tokens offering the kind of lottery-ticket upside you don’t get with stocks — in a 24/7 market, accessible to anyone with a smartphone, and offering 100x leverage — crypto became the 1920s stock market: a form of legalized gambling dressed up as investing.

It’s worked out pretty well. The compulsive risk-seekers have drawn attention to the world of crypto, stress-tested the infrastructure, incentivized investment in everything from perps exchanges to advanced cryptography, and generated billions in revenue spread across the entire ecosystem.

Now, however, crypto has a new competitor: sports betting.

After the Supreme Court opened the door to state-by-state legalization of gambling in 2018, sports betting has exploded. From 2019 to 2024, BLS data shows that gambling was the second-fastest-growing sector in the US, behind only software.

In 2025 alone, licensed sportsbooks earned an estimated $16.4 billion of revenue on $168 billion in wagers.

Some unknowable portion of that activity would otherwise have happened in crypto. 

Probably a big portion.

In 2021, a survey found that more than half of sports bettors had also invested in crypto. 

Is there any other cohort of people you could say that about? I’m not even sure that half of the people that talk about crypto on X have invested in crypto.  

More scientifically, in 2024, an academic study of states that legalized sports betting determined that “the provision of an alternate outlet for the gambling appetite of the residents of a region detracts from the attention that crypto tokens receive from that particular region.”

Or, stated more simply: “Retail crypto attention decreases after sports gambling is legalized.”

That trend away from crypto has likely accelerated since, because prediction markets have now effectively legalized gambling in all regions. 

Sports betting, specifically, has been the driving force behind an explosion of activity on prediction markets. Both the number of transactions on prediction markets and their notional value have increased an astonishing 25x over the past year.

This has provided a much-needed proof of concept that crypto can go mainstream: Many of these trades — maybe most of them, even — are made with stablecoins.

But the popularity of prediction-market sports betting may also be a large reason why the crypto market has felt so lackluster this cycle. 

When a 24/7 legal sportsbook is on your phone, the need to find “action” in the 24/7 crypto casino is far diminished.

Even the casinos have noticed.

In an amicus brief filed in a lawsuit against Kalshi, the Indian Gaming Association argued that, by making sports betting available in the state of Connecticut, Kalshi has been illegally “siphoning revenue from tribal governments.” 

Crypto might have even more of a complaint to make, seeing as the siphoning is happening on the stablecoin rails that crypto invented. 

You might even say that makes prediction markets a kind of vampire attack on crypto trading — using crypto’s own invention to steal their users.

The good news is: To the extent that prediction markets encourage gamblers to keep their money in stablecoins, there will be a large pool of money available to bet on the next big thing in crypto, whatever that may be (a Polymarket token, probably).

But crypto had better hurry. 

Prediction markets have become especially popular with teens who are below the legal age to access DraftKings or FanDuel, but remain free to trade on Polymarket with stablecoins. 

Just a year or two ago, these kids would have been betting on memecoins instead.

Today, they might be a lost generation of crypto traders.

Tragic.

— Byron Gilliam

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Arkham is a crypto exchange and a blockchain analytics platform that lets you look inside the wallets of the best crypto traders — and then act on that information.

Arkham’s Intel Platform has a suite of features including real-time alerts, customisable dashboards, a transaction visualization tool, and advanced transaction filtering — all of which is accessible on all major blockchain networks, and completely free.

Arkham’s main product is the exchange, where users can express their trade ideas against the market.

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