Can the Booming Prediction Market Wave Buoy These 5 Cryptocurrencies?

Over the past year, the interconnections between the prediction market and the crypto market have continued to grow. Top prediction market platforms such as Polymarket and Kalshi now offer contracts that focus on specific cryptocurrencies and crypto-focused events. At the same time, they are expanding their use of blockchain technology to make more efficient markets.

With that in mind, a handful of top cryptocurrencies might get a real boost from the booming prediction market. Let's take a closer look.

Demand is for high-volatility cryptocurrencies

From the perspective of prediction market participants, the most interesting cryptocurrencies are those with high volatility. In other words, if a cryptocurrency is prone to sharp price swings up and down, then it's going to generate enormous interest. These cryptocurrencies are typically the subject of much interest in the media.

That's why it's easiest to find prediction market contracts for cryptocurrencies such as Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH). While both are less volatile than they were even a few years ago, they are still boom-or-bust cryptos. Bitcoin might lose 64% of its value one year, then boom by 157% the next year, as it did in 2022-2023.

This massive volatility gives market participants plenty of opportunities to predict the future price of Bitcoin. If you're a short-term trader, you can predict the price of Bitcoin over the next 24 hours. If you're a long-term investor, you can predict the price of Bitcoin over the next 12 months.

Image source: Getty Images.

And these are hardly the only high-volatility cryptocurrencies drawing interest from prediction market participants. Two other cryptocurrencies include XRP (CRYPTO: XRP) and Solana (CRYPTO: SOL), both of which have shown explosive upside potential in the past.

And don't forget about meme coins such as Dogecoin (CRYPTO: DOGE). While it hasn't done much lately, Dogecoin went on an unbelievable rally in 2020-21.

The "Robinhood Effect"

The relatively recent entry of Robinhood Markets (NASDAQ: HOOD) into prediction markets has me keeping my eye on something known as the "Robinhood Effect." When applied to the crypto market, this refers to the interest of young retail investors in high-volatility cryptocurrencies capable of spiking much higher in a short period of time.

Interestingly, the five cryptocurrencies currently available within the new "Crypto" Prediction Markets tab on the Robinhood app are Bitcoin, Ethereum, XRP, Solana, and Dogecoin. These are the five cryptocurrencies I've mentioned. All are high-volatility, high-market-cap cryptocurrencies with passionate investor communities.

In short, they're the perfect types of cryptocurrencies to flourish within prediction markets. A typical investor might not have $82,000 to plunk down on a single Bitcoin, but for just a few bucks, they can predict whether or not Bitcoin will move from a price of $82,000 to $100,000 this year. Right now, according to Robinhood, Bitcoin has a 67% chance of doing exactly that.

A positive feedback loop for the crypto market?

Prediction markets cannot move cryptocurrencies higher on their own. But there is definitely a positive feedback loop. If the odds look good enough on a prediction market platform, investors might be tempted to put their money where their mouth is. That could lead them to buy a specific cryptocurrency.

Where it all leads is anyone's guess. It's just too hard to predict. It might turn out to be one big speculative bubble -- or it might turn out to be the easiest money you'll ever make.

Dominic Basulto has positions in Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.