Partnering with Kalshi, Coinbase "enters" the prediction market

America's largest cryptocurrency exchange, Coinbase, is preparing to launch a prediction market business, allowing its cryptocurrency clients to place bets on events such as elections and sporting events. This business will be supported technically by prediction market company Kalshi, marking Coinbase's entry into this fast-growing but increasingly competitive sector.

On Thursday, according to media sources, Coinbase plans to announce details of its prediction market and other products at the "Coinbase System Update" event to be held on December 17. Screenshots previously shared by tech researcher Jane Manchun Wong on the X platform show that Coinbase's prediction market will cover betting options such as Federal Reserve decisions, cryptocurrency prices, and news events.

This foray into prediction markets is part of Coinbase's strategy to become an "all-in-one exchange." The company's CEO, Brian Armstrong, has previously stated he is exploring the prediction market business. Prediction markets typically allow clients to bet using cryptocurrency, forming a natural connection with trading platforms.

The prediction market sector is becoming increasingly crowded. Polymarket is about to launch its U.S. business after receiving regulatory approval, while more companies, from Crypto.com to Truth Social under former President Trump, are also launching similar products.

A Key Step towards Becoming an "All-in-One Exchange"

Coinbase's entry into prediction markets fits with its broader strategic plans. Armstrong has explicitly stated that the company is exploring prediction market opportunities. Prediction markets and cryptocurrency exchanges have a natural synergy – such markets typically accept cryptocurrency as a payment method. For example, Kalshi accepts Circle’s USDC stablecoin and uses Coinbase to custody these tokens.

Armstrong himself has first-hand experience with how prediction markets work. One popular use case is predicting which words executives will use in earnings calls. Before Coinbase's earnings call last month, users on Polymarket and Kalshi placed bets on whether Armstrong would mention terms like Bitcoin, Ethereum, blockchain, staking, and web3. At the end of the call, Armstrong read out all these words directly, instantly producing winners and losers.

Giants Competing for Partnerships

Prediction markets are becoming the new battleground for tech and financial companies. Kalshi and Polymarket are not only competing for investor funds and users, but are also racing to become the backend service provider for prediction markets in other applications. In August, Robinhood announced it would partner with Kalshi to launch college and professional football prediction markets. After DraftKings acquired Railbird Exchange last month, it too will launch prediction markets, with Polymarket providing clearing services for Railbird.

Whether the partnership between Coinbase and Kalshi is exclusive remains unclear. Notably, Coinbase has invested in both Polymarket and Kalshi. Such partnerships may create new sources of revenue. At present, Polymarket does not charge any fees and thus generates no income, whereas Kalshi charges a fee for transactions.

Kalshi Actively Expands Its Business Map

To expand partnerships, Kalshi has appointed Max Crowley as Vice President of Business Development. Crowley briefly served as 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 has previously stated that the company may consider an initial public offering in the future. Last month, Kalshi raised more than $300 million in financing led by Sequoia Capital and Andreessen Horowitz, reaching a valuation of $5 billion, a significant jump from $2 billion in June of this year. Meanwhile, Polymarket last month received up to $2 billion in financing from Intercontinental Exchange, the parent company of the New York Stock Exchange, with a valuation of $8 billion.

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