What to know:
- BitGo and Susquehanna enable OTC prediction trades using crypto held in custody.
- Trades use crypto collateral and derivatives agreements with a $100K minimum size.
- US states escalate action on Kalshi as CFTC reviews prediction market rules.
BitGo has partnered with Susquehanna Crypto to offer its institutional clients over-the-counter access to prediction markets. This enables event-based contract trading via crypto assets or stablecoins held in custody, eliminating the need to convert or transfer such assets.
As per the announcement, the trade will be carried out through the BitGo platform. The liquidity will be provided by Susquehanna. This will enable hedge funds and family offices to execute bilateral trade without moving assets from custody.
The system eliminates the need to convert Bitcoin and stablecoins to fiat. Instead, assets are supported by crypto collateral. Derivatives-style contracts are used to execute the trade.
The trade size will be at least $100,000. This threshold reflects the focus on large institutional participants. The system is built to support the execution requirements required by institutional investors.
BitGo Targets Institutional Gaps
Prediction markets may include sports, geopolitical events, and weather. There are also specific markets for short-term Bitcoin price movements. Such variety has made prediction markets applicable in many sectors.
According to BitGo, the level of institutional participation has been low so far. The company identified a lack of custody solutions, collateral management services, and trading execution infrastructure. The partnership will help address the operational challenges.
The announcement comes as prediction markets face legal challenges in the United States. Various states have filed cases against prediction markets such as Kalshi.
In Nevada, the state court imposed a temporary ban on Kalshi on March 20. The ban was in favor of the gaming regulators who had raised concerns about event-based betting services offered by the prediction market platform.
The case in Nevada followed a federal appeals court’s decision. The court had turned down Kalshi’s request to delay the case. This allowed the legal proceedings to continue without interruption.
In Arizona, there were criminal charges filed against entities associated with Kalshi. The government claimed that there were breaches regarding election and sports betting. These actions marked another escalation in state-level enforcement.
Kalshi’s co-founder and CEO, Tarek Mansour, has denied the claims. He referred to the case as a “total overstep.” In addition, he said that the activities carried out by the company were not gambling.
Also Read: BitGo Expands Across Europe with Powerful Crypto-as-a-Service Launch Under MiCAR Rules
Other states are evaluating legislative measures for the sector. Utah has proposed a bill that includes measures to classify some contracts as gambling activities. This means that prediction markets in the country will be subject to stricter regulations.
Lawmakers in Pennsylvania are working on a separate bill for the sector. The bill includes measures that subject prediction markets to the gaming regulator in the state. It also includes a 34% tax on revenue earned in the sector.
Court Blocks State Action, Shifts Oversight to CFTC
Not all attempts to regulate the sector have been successful. A federal judge in Tennessee has blocked a move by the state to regulate the sector in February. The judge ruled that these contracts fall under the Commodity Exchange Act.
The decision placed oversight with the Commodity Futures Trading Commission. It restricted the ability for individual states to manage these markets. This led to a split in the way these markets were being handled.
Prediction markets have also come under scrutiny for potential risks of insider trading. There were instances that suggested that significant events were being predicted in these markets. The platforms have taken steps to address this issue.
There were new restrictions implemented by Kalshi and Polymarket on Monday. These restrictions are intended to prevent the use of non-public information and participation by people who are closely associated with the outcome.
At the federal level, regulators are reviewing the sector. The Commodity Futures Trading Commission issued a proposal on March 12. The agency is seeking public input on future rules for prediction market contracts.
Also Read: SoFi Partners With BitGo to Advance Distribution of SoFi USD Stablecoin
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