“Anytime crypto markets go bearish, someone frames it as a morality tale about excess crashing into regulation. That’s a tidy argument, but incomplete.”

If you want a permissive channel for betting on uncertainty, crypto hits the spot: All digital, vaguely regulated, truckloads of volatility, and realistic prospects for gains.

Prediction markets are now contesting that role. Their rapid rise has sucked up some of crypto’s speculative energy and made the current bear market worse.

When one trading route narrows, another tends to open. A chunk of crypto’s risk appetite has been diverted elsewhere, down a road with fewer frictions and clearer rules.

Key takeaways

• Prediction market volumes are up ~25x, driven largely by sports betting
• Research shows that retail crypto attention declines when sports betting is legalized
• Stablecoins are becoming the medium of choice for on-chain speculation

Risk-Seekers Get A New Channel

Pundits pin crypto’s latest downturn on predictable factors: higher interest rates, regulatory drag, TradFi hoarding, trade uncertainties, etc. Those all count, but what if another force has been attacking crypto trading indirectly, absorbing some of its speculative attention?

Since the Supreme Court cleared the way for state-by-state sports betting in 2018, online gambling has skyrocketed. It was the second-fastest growing sector between 2019 and 2024 (only software beat it). Last year, licensed sportsbooks generated ~$170 billion in wagers.

The upsurge normalized one of the riskiest forms of financial gain-seeking, undermining crypto’s role as the most widely accessible, always-on outlet for speculative risk. 

There’s strong evidence that both activities draw from the same retail pool and share similar risk appetites. But gambling has …

Full story available on Benzinga.com