Nic Carter: Prediction Markets Immature — Insider Trading, Fragmentation and Lack of Natural Liquidity Are Major Problems
Investor and Coin Metrics co-founder Nic Carter argues prediction markets remain immature and face structural barriers that prevent them from fulfilling early proponents’ ambitions. Carter identifies two core problems: (1) market fragmentation and a shortage of natural buyers and sellers, which reduces liquidity and undermines usefulness as a hedging tool; and (2) the role of insider information—while predictive value can stem from leaked or privileged knowledge, such trading is often illegal and risks destroying market credibility. He notes current prediction markets largely survive on sports betting activity; in non-sports domains, insider-trading scandals could drive users away and damage perceptions of fairness. Carter predicts prediction markets may become cultural phenomena by 2025–26 but says their practical utility will likely remain limited, with future growth concentrated in sports and cultural events rather than broader financial hedging. The piece highlights implications for traders: limited liquidity, susceptibility to manipulation, legal risk around information sources, and continued reliance on speculative participants to subsidize hedgers.
Neutral
Carter’s critique points to structural limitations rather than an immediate market shock. The problems he highlights — fragmented liquidity, dependence on speculative participants, and legal risks from insider-driven signals — increase trading risk and reduce the reliability of prediction markets as hedging instruments. For crypto traders, this suggests limited impact on major crypto prices but signals caution for trading prediction-market tokens or derivatives: expect low liquidity, higher spreads, and elevated manipulation risk in short term. Historically, markets that rely on opaque information and thin liquidity (e.g., early tokenized prediction or niche derivatives markets) see episodic spikes in volatility and reputation damage after scandals, which depresses long-term adoption. Over the long run, if prediction markets concentrate in regulated, high-volume verticals like sports and cultural events and adopt stronger compliance, some confidence and liquidity could return. But absent structural change (aggregation of liquidity, clearer legal frameworks, market makers), these markets will likely remain niche — negative for growth of prediction-market tokens but not directly bearish for broader crypto market fundamentals.