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There’s an increasing intersection between Wall Street and prediction markets. Here’s a quick, though admittedly not fully encompassing recap. Keep in mind, what follows is just a few months of news flow.
CME Group is partnering with FanDuel on a prediction market platform that’s expected to debut any day now. Intercontinental Exchange, the owner of the New York Stock Exchange, invested $2 billion in Polymarket, pushing that company’s post-money valuation to $9 billion to $10 billion.
Robinhood Markets is partnering with market maker Susquehanna International Group on its own prediction market. WeBull has a partnership with Kalshi. Coinbase is close to announcing something similar and it’s rumored eToro has held talks with Kalshi and Polymarket. Kalshi has a deal with CNBC and Google Finance. Rival Polymarket has similar pacts with Google Finance and Yahoo Finance.
The list goes on and will continue expanding over the near-term. Don’t expect it to include Charles Schwab and that’s a positive on that company’s part.
Schwab Consistent, Right to Take This Approach
Forgive me for interjecting, but I extensively write about prediction markets. Far more than I ever expected, but I will say it’s been educational, fun and intellectually stimulating. There’s value in prediction markets as tools for price or truth discovery in certain markets and I’m reluctant to bash this form of betting/trading beyond pondering the merit of 11-figure valuations on some of the companies.
Still, Schwab is right to continue its consistent stance that prediction markets don’t belong on its platform and that increasingly blurry line between betting and investing. In a new interview with the Wall Street Journal, CEO Rick Wurster said the firm is drawing a “bright line” between investing and wagering. Translation: Don’t expect an announcement involving Schwab and a prediction market partnership because it’s not going to happen.
Skeptics may say that all Schwab is doing is creating an extra step, meaning clients that really want prediction market access aren’t going to be deterred. They’ll simply go to the event contracts app before after they fiddle with their Schwab accounts.
On the other hand, some failsafe or guardrail is better than none at all, particularly with this topic, and it’s a step in the right direction. Especially when considering more than 60% of Gen Zers in the 18-25 age group bet online or in person. But betting isn’t legal for people under 21 so do those in the 18-20 group wager? One avenue is prediction markets popping up on trading platforms because the minimum age in the U.S. for a standard brokerage is 18, not 21.
Gambling Isn’t Investing
No matter what a bettor’s flavor is, wagering carries expected negative returns. All the games in a casino have house edges and it’s estimated just 5% of sports bettors are profitable over the long-term. If I had to bet, pun intended, the percentage that can bet on sports and come away with a credible living is less than 2%.
Although official data haven’t been released, word on the street is a massive percentage of retail traders/bettors on platforms like Kalshi are not profitable. On the other hand, good old fashion investing has positive expected returns, confirming Schwab is wise to stick to the basics and not indulge the gamification of investing.
“Investing, on the other hand, is the allocation of capital to a business or asset with the expectation that it will generate income or appreciate in value. Over the past century, investments in stocks and bonds have reliably yielded positive returns,” according to the company.
Related: Gen X Is Finally Getting Serious About Retirement — And Advisors Can’t Afford to Miss It