Winklevoss’ Gemini set to bet big on prediction markets

Gemini, the cryptocurrency exchange founded by Tyler and Cameron Winklevoss, is preparing to launch prediction market contracts, according to sources close to the situation who wished to remain anonymous.

This move would position Gemini among the many financial firms entering a new field of prediction markets. Reports highlighted that this market will provide a controlled method for betting on outcomes of elections, sports games, and other events. 

The launch represents Gemini’s effort to diversify its offerings amid a competitive crypto exchange market.

Gemini aims to remain competitive in the crypto space 

Recently, Gemini has been making significant moves to strengthen its position in the crypto space. To begin with, the firm applied for regulatory approval to establish its own derivatives exchange, which is designated as a contract market. 

This update followed discussions by the cryptocurrency exchange’s officials about using this exchange for trading prediction contracts. The application is still under review. 

Meanwhile, Gemini reported a steeper loss than analysts anticipated in its first earnings release since going public. The company posted a loss of $6.67 per share, compared with the $3.24 loss expected by analysts surveyed by Bloomberg. Gemini, which debuted on public markets in September, has seen its stock price fall almost in half from the peak, amid a broader decline in cryptocurrency prices.

The company’s shares dropped as much as 12% in post-market trading after the announcement. Gemini had higher expenses due to the cost of its initial public offering and broader marketing efforts, among other factors.

It is worth noting that securing approval from the US Commodity Futures Trading Commission for a new exchange can take a considerable amount of time, often spanning months or even years. The delays may also occur if a government shutdown takes place.

Another significant milestone in the ecosystem is that several exchanges and retail investment brokers have decided to collaborate with existing prediction market platforms that already hold the necessary licenses, rather than starting from scratch. An example of these platforms is Robinhood, which offers its clients event contracts from Kalshi Inc.

If Gemini moves forward with its plans, the company can compete against key players such as trading exchange Kalshi, which is already registered with the US derivatives regulator, and Polymarket, which seeks to resume operations in the US soon.

Trump Media and Technology Group also entered the growing trend of prediction markets, partnering with Crypto.com. The predictions are expected to be integrated with Truth Social, Trump’s social media platform. Truth Social will use Crypto.com Derivatives North America as a clearinghouse, tapping a CFTC-registered platform. The initial testing of Truth Predict, the new market, is expected to commence soon.

Prediction markets face significant regulatory challenges.

Following the growing trend among companies to participate in prediction markets, established exchange companies such as CME Group Inc. and Intercontinental Exchange Inc. have reportedly entered the prediction market.

Moreover, Gemini’s major competitor in the crypto industry, Coinbase Global Inc., pointed out in recent earnings calls that it aims to branch out into event contracts. According to the company, this move is part of its expansive goal to become an “Everything Exchange” for different financial products. 

On the other hand, Gemini announced in a regulatory filing that it intended to launch event contracts for predictions connected to sports, finance, politics, and economics before its initial public offering in September this year.

Since going public, the firm’s stock has drastically declined by 40% from its debut price. Its IPO prospectus explained that Gemini is not currently profitable. The legal document also highlighted that the cryptocurrency exchange only accounts for a small portion of crypto trading in the US.

This situation prompted a Needham analyst to comment on the matter. The analyst acknowledged that the prediction markets present an ideal opportunity for Gemini to expand its services beyond what it currently provides.

However, reports noted that prediction markets still face major regulatory challenges. For example, while CFTC has granted Kalshi permission to introduce new markets, state gaming regulators, who usually manage sports betting, have opposed this decision in court.