How Prediction Markets Are Emerging as a New Asset Class, According to Citizens Bank

Prediction markets are gaining recognition as a distinct asset class, supported by growing institutional interest and expanding trading platforms. Citizens Bank has highlighted this evolution, emphasizing its potential to challenge traditional risk models and offer novel insights into macroeconomic and policy outcomes.

What happened

In a recent market commentary, Citizens Bank explicitly identified prediction markets as an emerging asset class. These markets enable trading on the outcomes of future events such as political elections, economic indicators, and policy decisions. This development is underpinned by the launch of new financial products and platforms designed to facilitate such event-driven trading.

Alongside this growth, institutional participation is increasing. According to the Citizens Bank report, some ETF issuers and hedge funds have begun incorporating instruments or derivatives linked to prediction market outcomes. However, no specific ETF issuers or detailed disclosures were named, and references to these developments remain indirect, including mentions of SEC filings.

Independent research from Bloomberg confirms that prediction market platforms have seen significant growth in liquidity and trading volumes over the past three years, indicating a maturing market. This expansion supports the view that prediction markets are moving beyond niche status.

Further, a 2025 report from the CFA Institute Research Foundation highlights that prediction markets offer unique, real-time data reflecting collective market sentiment on macroeconomic and policy events. This information is seen as complementary to traditional risk models, which often rely on historical data and static assumptions.

Why this matters

The recognition of prediction markets as an asset class has important implications for market structure and risk assessment. Citizens Bank suggests that this evolution challenges conventional risk models by introducing dynamic, crowd-sourced probability estimates rather than relying solely on historical trends.

Bloomberg’s analysis points to the increased liquidity and institutional involvement as factors enhancing the viability of prediction markets as tools for portfolio diversification. By providing exposure to event-driven risks that are not typically correlated with traditional asset classes, prediction markets could offer investors new avenues to manage risk.

The CFA Institute’s findings further underscore the potential significance of prediction markets by identifying their data as a source of forward-looking insights. Integrating prediction market signals into portfolio management and risk forecasting might improve decision-making processes, especially regarding macroeconomic and policy uncertainties that conventional indicators may not fully capture.

Despite these positive indications, some interpretations caution that prediction markets remain relatively niche, with regulatory frameworks still evolving. Their integration into mainstream portfolios is described as experimental rather than firmly established, reflecting ongoing uncertainty about long-term stability and regulatory treatment.

What remains unclear

Several key questions remain unanswered based on the available reporting. The specific ETFs or financial products that currently include prediction market-linked instruments have not been identified, nor have their market capitalizations or trading volumes been disclosed. This lack of transparency limits understanding of the scale and impact of institutional adoption.

Moreover, there is limited empirical evidence on how prediction market-derived signals quantitatively improve traditional risk models compared to established econometric approaches. The degree to which these markets correlate with or diverge from traditional asset classes under varying macroeconomic conditions is also not documented.

Regulatory frameworks governing prediction market assets remain underexplored in the sources reviewed. How evolving rules might affect investor access, market stability, or broader acceptance of prediction markets as an asset class is an open question.

What to watch next

Disclosures from ETF issuers and hedge funds regarding the inclusion and performance of prediction market-linked instruments, including detailed SEC filings if available.
Empirical research or case studies quantifying the impact of integrating prediction market data into risk models and portfolio management strategies.
Regulatory developments addressing the classification, oversight, and investor protections related to prediction market assets.
Market data tracking liquidity, trading volumes, and correlations between prediction markets and traditional asset classes across different economic cycles.
Institutional investor statements or strategies revealing how prediction markets are being incorporated into broader asset allocation frameworks.

Prediction markets are gaining traction as a new asset class, offering dynamic and event-driven insights that challenge traditional risk assessment frameworks. However, the absence of detailed disclosures, empirical validation, and clear regulatory guidelines means that their full integration into mainstream finance remains a work in progress. Monitoring institutional adoption, regulatory responses, and empirical outcomes will be essential to understanding their evolving role in global markets.

Source: https://www.coindesk.com/markets/2025/12/15/prediction-markets-are-quietly-turning-into-a-new-asset-class-citizens-says. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.