Robinhood expands prediction markets despite legal uncertainty
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Robinhood is expanding its prediction markets offerings, defying critics and plunging ahead despite looming uncertainty over the regulatory future of event contracts.
Why it matters: Robinhood has more than 28 million funded customers, making it a seamless entry point into prediction markets for many retail investors.
Driving the news: The investment app announced Tuesday that it signed a multi-year deal to route event contract volume through the derivatives exchange and clearinghouse of Crypto.com spinoff OG.com.
- Robinhood said it will become OG.com's biggest business-to-business prediction markets partnership.
- The move comes after Citadel Securities backed Crypto.com this summer, valuing the company at $20 billion, including a $5 billion valuation for OG.com.
- Robinhood will get a stake in Crypto.com and OG.com after the spinoff.
The intrigue: The deal reflects Robinhood's bid to diversify its prediction market strategy.
- The firm last year launched a prediction markets hub with Kalshi floating the contracts, including sports.
- Robinhood will continue to route contracts to Kalshi, plus ForecastEX and Rothera, The Block reports — but the Crypto.com deal gives it an incentive to shift more volume toward its new portfolio company.
- A Kalshi spokesperson said the deal doesn't affect its arrangement with Robinhood.
Friction point: Critics say placing prediction markets alongside conventional investment opportunities creates a slippery slope for retail investors.
- "A bet on a football game does not become an investment simply because it appears next to your retirement account," Mick Mulvaney, Executive Director of Gambling is Not Investing, said in an emailed statement in response to an Axios request.
- "Robinhood and irresponsible prediction market operators are sending a dangerous message by marketing to teenagers that betting on the Oklahoma-Michigan game this weekend is in the same ballpark as trading oil futures or buying a stock."
The other side: Supporters say that prediction markets are a legitimate financial product regulated by the Commodity Futures Trading Commission.
What we're watching: Whether the Supreme Court opts to decide if prediction markets should be regulated by the CFTC or by state gaming commissions.
- If the court takes the case and sides with the states, it could pose a significant obstacle to Robinhood and others from continuing to offer event contracts to their customers.
What they're saying: Dustin Gouker, a gambling industry analyst, said he expects the budding industry to "keep proceeding like prediction markets and sports event contracts are here to stay until it's clear they are going away," noting that "there is no guarantee that the Supreme Court takes the New Jersey case right now."
