Prediction markets are moving closer to institutional finance as large investors seek direct ways to trade event risk, according to a May 4 Bernstein report.
Summary
- Bernstein says Kalshi’s first bespoke block trade could attract institutions seeking direct event-risk exposure.
- Greenlight brokered the Kalshi trade, with Jump Trading providing liquidity for a carbon allowance contract.
- Retail still drives prediction markets, with Polymarket and Bitget reporting $25.7B in March volume.
The firm said these markets can help investors track outcomes tied to tariffs, elections, policy decisions and geopolitics through clear yes-or-no contracts.
Bernstein pointed to Kalshi’s first bespoke institutional block trade as a key step. A block trade is a large private deal arranged between market players. In this case, the contract was built around the clearing price of California’s May carbon allowance auction.
Kalshi trade draws institutional attention
The Kalshi deal was brokered by Greenlight Commodities. It involved a Houston-based environmental hedge fund, with Jump Trading acting as the liquidity provider. The structure showed how prediction markets can serve a specific hedging need, rather than only broad retail speculation.
“We believe the introduction of block trading and bespoke contracts could expand participation from institutional investors seeking targeted exposure to event risks,” Bernstein analysts wrote.
The report framed custom contracts as a possible entry point for investors that need defined outcomes and larger trade sizes.
Clear Street’s partnership with Kalshi also added a regulated access route for larger investors. The deal covers clearing, settlement, block trading, swap services and trading tools for institutional clients. Clear Street said it became the first institutional Futures Commission Merchant to join Kalshi’s exchange and clearing house.
Retail still leads market volume
Despite rising institutional interest, prediction markets remain largely retail-driven. A Bitget Wallet and Polymarket report found that Polymarket recorded $25.7 billion in March trading volume. It also found that most users were smaller traders, with 82.8% trading under $10,000.
Bernstein said wider institutional use could push prediction markets toward a much larger industry by the end of the decade. However, the sector still faces questions about regulation, risk controls and whether event contracts should sit closer to financial markets or betting markets.
U.S. regulation remains uneven
Kalshi operates under the Commodity Futures Trading Commission, while Polymarket received conditional approval in late 2025 to offer event contracts in the U.S. through regulated channels, according to the Bernstein report.
Regulators and lawmakers continue to review the market. Reuters reported on May 4 that the SEC delayed more than two dozen proposed prediction-market ETFs while asking issuers for more information on mechanics and investor disclosures.
The U.S. Senate also voted on April 30 to ban senators, staff and officers from using prediction markets. Lawmakers cited concerns over public officials trading on real-world events while holding access to sensitive information.
