The prediction market is about to get a whole lot more interesting. Galaxy Digital, the crypto-focused financial services firm led by Mike Novogratz, is reportedly in talks to become a market maker for prediction platforms like Polymarket and Kalshi. This move signals a maturation of the sector, potentially leading to tighter spreads and more efficient price discovery for those betting on everything from election outcomes to the next Fed chair.
For years, prediction markets have been a niche corner of the financial world, hampered by regulatory uncertainty and a lack of institutional participation. Now, with a shifting regulatory landscape and growing interest from established trading firms, that’s all starting to change.
Galaxy‘s potential entry into the prediction market arena could be a game-changer. According to a Bloomberg report, Novogratz himself confirmed that Galaxy is “doing some small-scale experimenting with market-making on prediction markets,” with plans to provide “broader liquidity” down the line.
This would essentially bring the same kind of market depth that Galaxy already provides to global crypto exchanges. More liquidity generally translates to lower transaction costs and a better experience for users.
Beyond just lowering costs, Galaxy’s involvement could help bridge the gap between different prediction market platforms.
Currently, the lack of sophisticated market makers creates significant arbitrage opportunities. Prices for the same event can vary wildly between platforms.
To illustrate, consider the hypothetical scenario where contracts for Kevin Hasset becoming Chair of the Federal Reserve trade at wildly different prices on Kalshi and Polymarket. This kind of price divergence is precisely what institutional traders like Galaxy are equipped to exploit, bringing prices closer to equilibrium.
This situation is reminiscent of the early days of cryptocurrency trading, before firms like Jump Trading, Alameda Research, and Susquehanna International stepped in to provide liquidity. These firms are now eyeing similar opportunities in prediction markets.
Kalshi, for example, onboarded Susquehana as its “first major institutional market maker” in 2024. Jump Trading has also reportedly started providing liquidity for the platform, according to Bloomberg.
What’s driving this surge of institutional interest?
A key factor is the evolving regulatory landscape. Kalshi founder Tarek Mansour has emphasized that institutional market making became feasible only after the platform secured regulatory approval from the Commodity Futures Trading Commission (CFTC).
This marks a significant shift from 2022, when the CFTC ordered Polymarket to withdraw from the U.S. However, Polymarket’s recent comeback, facilitated by its acquisition of QCEX and its CFTC authorizations, signals a more welcoming environment.
Even with the CFTC’s green light, prediction markets still face challenges related to gambling laws. Lawsuits filed by the New Jersey Division of Gaming Enforcement and Blue Lake Rancheria, arguing that prediction markets constitute gambling, pose a threat.
However, a favorable outcome for Kalshi in these cases could set a precedent that limits future litigation and encourages further institutional participation.
The potential entry of Galaxy Digital into the prediction market space is a clear sign that this sector is maturing. As regulatory hurdles continue to fall and institutional interest grows, prediction markets could become an increasingly important tool for forecasting and hedging risk across a wide range of industries. The future, as they say, is predictable… or at least, it’s becoming more so.
