Getting Strategic with Prediction Markets

Prediction markets have become a defining technological innovation of this market cycle, and venture capitalists are now chomping at the bit to get their foot in the door.

This week, Polymarket and Kalshi – two leading prediction market platforms – were reported to be scoring nearly $400M in fresh funding, securing respective reported $1B and $2B valuations from leading venture capital firms including Founders Fund and Paradigm.

While equity upside in these companies is restricted to private market participants, almost anyone can experiment with these platforms by placing bets on real-world events for the chance to profit from correctly predicting the future.

Today, we're taking a look at some general strategic guidelines for becoming a predictions market pro! 🎖️🔮👇

1️⃣ Play the Contrarian

Prediction markets are an all-or-nothing game. Shareholders of the winning outcome receive $1 per share, meanwhile, all other players see their bets vanish into the ether, sacrificed to the gods of chance.

Although it may feel comforting to place a consensus bet through your prediction market of choice, these shares come with a higher purchase price. This dynamic limits the potential payout for every dollar of bets purchased and increases the max loss per bet.

Even when armed with extreme conviction in the outcome of an event, it makes little sense to risk everything by picking up pennies in front of the steamroller that is a winner-take-all prediction market.

Instead, for the degen willing to lose what they put in, focusing your bets on seemingly unlikely outcomes can be a solid strategy for achieving insane multiples. For example, those who diversified minor bets across apparent papal underdogs before the next Pope was announced scored an immediate 330x on their Robert Francis Prevost shares.

2️⃣ Don’t Fret the Wait

When it comes to prediction markets, there is often little sense in jumping into position well in advance of a market’s resolution (unless you believe the market is drastically mispriced at a given time).

Time costs money, and there are seldom rewards for being early in prediction markets. In fact, waiting until close to resolution can yield dividends for bettors with strong convictions, particularly those looking to trade with size.

Prediction markets typically experience heightened trading volumes as they approach expiration, allowing users to purchase outcome shares with tighter spreads and deeper liquidity. Simultaneously, in scenarios where the market expects the incorrect outcome, purchasing shares near expiration can yield the greatest payouts.

While one could have speculated on Donald Trump winning the U.S. popular election in mid-July 2024 and still booked a profit, they would have been forced to lock up capital in an unproductive asset throughout a multi-month period, during which they would suffer considerable drawdowns.

Conversely, patient bettors who waited until election eve to express their beliefs that Donald Trump would win this market had the ability to purchase shares at all-time lows of $0.25, which swiftly quadrupled in value the very next day.

3️⃣ When in Doubt, Bet No

As one of Twitter’s favorite adages goes: “Nothing Ever Happens!”

The same day U.S. recessionary fears boiled over and went mainstream in early April as the banking elites set their concerns on slow growth and presumed tariff uncertainty, the high in Polymarket’s “US recession in 2025?” was set.

For bold who decided to fade palpable recessionary certainty, the very moment mass pandemonium arrived presented the optimal opportunity to begin betting against a U.S. recession in 2025. History would repeat itself on May 1, when former Secretary of the Treasury and Federal Reserve Chair Janet Yellen called the top on Polymarket’s recession odds with a stark warning that Trump tariff policies could trigger a recession.

Whenever a high-profile prediction markets indicates increasing certainty of one outcome – whether it be the imminent outbreak of global conflict or the arrival of an eagerly anticipated airdrop – it can often be worth betting that the event in question will not materialize.