Joining forces with Kalshi, Coinbase "enters" the prediction market

The largest cryptocurrency exchange in the United States, Coinbase, is preparing to launch a prediction market business that will allow its cryptocurrency customers to bet on events such as elections and sports events. This business will be supported by technology from the prediction market company Kalshi, marking Coinbase's entry into this rapidly growing but increasingly competitive field.

On Thursday, sources familiar with the matter revealed that Coinbase plans to announce details of its prediction market and other products at the "Coinbase System Update" event scheduled for December 17. Screenshots shared by tech researcher Jane Manchun Wong on the X platform previously indicated that Coinbase's prediction market would cover betting options on Federal Reserve decisions, cryptocurrency prices, and news events.

This move into the prediction market is part of Coinbase's strategy to become a "one-stop exchange." The company's CEO, Brian Armstrong, has previously stated that they are exploring the prediction market business. Prediction markets typically allow customers to place bets using cryptocurrencies, creating a natural connection with trading platforms.

The prediction market space is becoming increasingly crowded. Polymarket is set to launch its U.S. operations after receiving regulatory approval, and more companies, including Crypto.com and Truth Social under President Trump, are also launching similar products.

A Key Step Towards Becoming a "One-Stop Exchange"

Coinbase's entry into the prediction market aligns with its broader strategic planning. Armstrong has explicitly stated that the company is exploring opportunities in prediction markets. There is a natural fit between prediction markets and cryptocurrency trading platforms—these markets typically accept cryptocurrencies as a payment method. For example, Kalshi accepts Circle's USDC stablecoin and uses Coinbase to custody these tokens.

Armstrong himself has firsthand knowledge of how prediction markets operate. A popular betting option in prediction markets is to predict which words executives will use during earnings call meetings. Before Coinbase's earnings call last month, users on Polymarket and Kalshi bet on whether Armstrong would mention terms like Bitcoin, Ethereum, blockchain, staking, and web3. At the end of the call, Armstrong directly read out all these terms, immediately creating winners and losers.

Giants Competing for Partners

Prediction markets are becoming a new battleground for technology and financial companies. Kalshi and Polymarket are not only competing for investor funds and users but are also vying to become backend service providers for other applications' prediction markets. Robinhood announced a partnership with Kalshi in August to launch a prediction market for professional and college football. DraftKings is also set to launch a prediction market after acquiring Railbird Exchange last month, with Polymarket providing clearing services for Railbird. It is unclear whether the partnership between Coinbase and Kalshi is exclusive. Notably, Coinbase has invested in both Polymarket and Kalshi. Such partnerships may create new revenue streams. Polymarket currently does not charge any fees and therefore does not generate revenue, while Kalshi charges fees for transactions.

Kalshi Actively Expands Its Business Landscape

To expand its partnerships, Kalshi has hired Max Crowley as Vice President of Business Development. Crowley briefly served as the head of partnerships at Polymarket this fall and previously worked at Gopuff and Uber. Kalshi has also hired its first Chief Financial Officer, Saurabh Tejwani, who comes from Gopuff.

Tejwani previously stated that the company will consider an initial public offering in the future. Last month, Kalshi raised over $300 million in funding led by Sequoia Capital and Andreessen Horowitz, with a valuation of $5 billion, significantly up from $2 billion in June of this year. Meanwhile, Polymarket secured up to $2 billion in funding from the Intercontinental Exchange, the parent company of the New York Stock Exchange, last month, with a valuation of $8 billion