This document is for informational purposes only and does not constitute investment advice or a solicitation to trade. All trading involves risk, and you could lose your entire investment. Please see below for further disclosures.
What are prediction event contracts on Crypto.com?
Prediction event contracts are innovative financial instruments that allow you to speculate or hedge on the occurrence, non-occurrence, or extent of a specified event by purchasing contracts that represent various probabilities. Unlike traditional derivatives, which derive their value from underlying assets like stocks or commodities, prediction contracts derive their value solely from the likelihood of specific events occurring.
These contracts differ significantly from traditional betting products in various respects. Betting typically involves fixed probabilities set by bookmakers, whereas prediction markets operate as continuous double auctions, with prices fluctuating based on the supply and demand from participants. This creates a more efficient price discovery mechanism, reflecting the collective knowledge and insights of market participants.
The system, however, is not flawless. In practice, some traders may purchase contracts based on personal biases, driven by emotional attachment to their favorite teams or investments, rather than objective analysis.
At Crypto.com, we offer a range of prediction event contracts that cover categories including fluctuations in cryptocurrency prices, sports events, political happenings, and economic indicators like interest rate decisions. To access these markets, you’ll need to complete the requisite regulatory onboarding.
Our Predict platform operates on blockchain technology, ensuring transparency, immutability of contract terms, and automated settlement based on predetermined criteria. This infrastructure allows for trustless execution through smart contracts, eliminating reliance on traditional intermediaries and enhancing market efficiency.
Popular prediction event categories on Crypto.com include Bitcoin price forecasts, major sports events, and Federal Open Market Committee (FOMC) decisions. Explore prediction markets with us.
Please remember that this guide is for educational purposes only and does not constitute a recommendation or investment advice.
The mechanics of prediction contract payout structures
Most prediction contracts on Crypto.com are structured as event-referenced swaps, operating on a yes/no basis regarding event occurrences. Each contract typically trades between $0.01 and $0.99, with the price reflecting the market’s overall assessment of the implied probability that the event will take place.
In general, if a contract is trading at $0.70, it implies a 70% probability of the event occurring. In a complete market, the total probabilities of all possible outcomes should sum to 100%. If a ‘Yes’ contract trades at $0.65, its corresponding ‘No’ contract should trade at or near $0.35, ensuring market consistency and preventing arbitrage opportunities. Nonetheless, contracts may occasionally deviate by small amounts as they readjust.
Prices are adjusted in real-time based on publicly available information and participants’ opinions. Upcoming information or nearing event dates typically lead to price adjustments. The liquidity found in popular markets generally results in more accurate pricing and smoother price movements.
Crypto.com employs a fee structure that includes trading and possible withdrawal fees. The platform’s fee schedule is transparent and competitive compared to other prediction market platforms. For markets using a $1 contract size, there is a $0.02 trading fee.
The formula for calculating potential returns is straightforward:
Potential return = (1 – purchase price) ÷ purchase price.
For instance, buying a ‘Yes’ contract for $0.40 and the event occurring would yield a return of ($1.00 – $0.40) ÷ $0.40 = 150%, or $0.60 profit, in addition to your initial $0.40 stake for a total of $1 on the contract.
Types of prediction contracts available on Crypto.com
Crypto.com offers several types of prediction contracts:
- **Basic** – This represents the simplest form of event contracts, allowing for two possible outcomes. For example, ‘Will Bitcoin exceed $150,000 by December 31st?’ or ‘Will the Federal Reserve cut the federal funds rate again this year?’ These contracts settle at either $1.00 (if correct) or $0.00 (if incorrect).
- **Scalar** – These contracts feature ranges of possible values rather than simple yes/no outcomes. For instance, ‘What will Bitcoin’s price be at the end of Q4?’ may involve multiple price ranges, offering a more nuanced prediction about specific values within that range.
- **Categorical** – These contracts provide multiple distinct possibilities for events, featuring several potential outcomes. An example is ‘Which cryptocurrency will have the highest percentage gain in 2025?’ where Bitcoin, Ethereum, and Solana could each be separate contracts.
We also provide conditional markets that create ‘if…then’ scenarios, where the result of one event depends on another. For example: ‘If a specific Bitcoin ETF approval occurs, will the BTC price exceed $120,000 within 30 days?’
Time-based resolution mechanisms ensure that all contracts settle fairly and promptly, depending on predetermined criteria and multiple data sources to reduce disputes and enhance accuracy. While we strive for timely settlements, delays may occur when the outcome is questionable.
Step-by-step guide to participating in Crypto.com prediction markets
Engaging in event contract trading on our Predict platform is straightforward and allows you to predict the occurrence of various events:
1. Account setup and verification
The first step involves downloading the Crypto.com App from the App Store or Google Play Store and creating your free account using your email and a robust password. You’ll then complete the Know Your Customer (KYC) verification process, which necessitates a government-issued ID (such as a passport), proof of address (like a utility bill), and a selfie for identity verification. This process is legally required and helps secure your account with multi-factor authentication.
2. Funding your account
Next, transfer funds to your Crypto.com account using any of our supported methods, including bank transfers, cryptocurrency deposits, or credit and debit cards. Some deposit methods may incur fees, so it’s advisable to fund your prediction market account well ahead of your intended trading time.
3. Navigating to the Predict platform
Once your account is active, click on the main menu and find ‘Predict’ in the dropdown list. This feature may appear under trading tools or as a separate section based on the latest app updates. Existing users can usually access Predict immediately, but there may be additional terms and conditions to accept based on jurisdiction.
4. Placing your first contract
You can trade contracts on a wide array of live and upcoming events across sports, politics, and economics. Sports markets feature major leagues like the NFL and NBA, while political markets include election results and policy decisions. You’ll find hundreds of markets to choose from.
Filter events by category and review vital details such as timing, current probabilities, and trading volume. When you select an event, available contracts will represent the possible occurrences, each with clearly defined terms and resolution criteria. When you’ve identified a suitable contract, enter the number of contracts you wish to purchase, review the total cost (including fees), and confirm your order. Remember, trading doesn’t need to be frequent; many users prefer to place trades in specific markets where they feel confident.
5. Position sizing and risk management
Position sizing should revolve around a rule of not risking more than you can afford to lose, typically limiting any single position to a maximum of 5% of your total account value. Diversifying across multiple, uncorrelated events can also help manage overall portfolio risk. Upon placing a trade, the platform will show your potential profit based on current market prices—for example, buying a ‘Yes’ contract at $0.65 would yield $1 if successful, giving a profit of $0.35 (minus fees).
Always carefully review your choice, stake size, potential return, and total costs before confirming any trade. If probabilities seem unusually favorable, it may indicate new information affecting the event that you might have overlooked. Utilize our educational resources for further insights.
6. Monitoring open positions
After placing a trade, monitor your positions closely, as market conditions and newly available information can alter contract values. You can regularly track your contracts’ current worth on the Crypto.com App. To manage risk, you may decide to exit a position before the event concludes by selling contracts at the current market price, though this depends on market liquidity. Setting alerts for major price movements or news updates can enhance your responsiveness.
7. Settlement process
Once an event concludes, contracts automatically settle based on the predetermined criteria. Winning contracts settle at $1.00 per share, while losing contracts expire worthless. Generally, settlement occurs within a few hours post-result announcement, with the funds credited to your Crypto.com account balance.
Your potential profit is calculated as $1 per winning contract minus the purchase price and relevant fees. After settlement, these funds can be withdrawn, reinvested in new trades, or converted into cryptocurrency.
Understanding probabilities and potential returns
At Crypto.com, probabilities are typically displayed as decimal prices, representing the cost per share that directly correlates to implied probabilities. For instance, a contract priced at $0.25 indicates a 25% likelihood of the event occurring, while $0.80 indicates an 80% chance.
However, it’s crucial to recognize that implied probabilities and actual chances may diverge, as these contracts are influenced by sentiment and crowd psychology. Generally, the relationship between contract price and potential return is inverse; lower-priced contracts offer higher potential returns but represent less likely events, while higher-priced contracts offer smaller returns but correspond to more probable occurrences.
For instance, let’s consider the question: ‘Will the Federal Reserve raise the federal funds rate to 10% in the next 12 months?’ An event this implausible may have ‘Yes’ priced close to $0.01, meaning a $1 stake could return $100 if it somehow materializes. Conversely, ‘No’ might be priced around $0.99, reflecting a nearly certain outcome but yielding a much smaller return.
This highlights the inherent risk-reward curve present in prediction markets. Betting on low-probability, high-impact events can lead to significant rewards, though the chances of success are slim. In contrast, higher-probability occurrences offer more reliable, albeit modest, returns.
On Crypto.com, contract prices encapsulate implied probabilities, but the actual likelihood may vary based on market sentiment. A valuable tool for evaluating trades is Expected Value (EV), calculated using the formula:
EV = (Probability of Being Correct x Potential Profit) – (Probability of Losing x Amount Risked).
For example, a contract priced at $0.10 and a $10 stake could yield $100 if it wins. If the implied probability aligns with the potential profit, EV becomes zero; however, if the contract is undervalued at $0.08, the EV turns positive, indicating a potentially profitable trade over time.
As events near their resolution dates, probabilities often become more extreme, creating both opportunities and risks for traders who seek to identify mispriced contracts.
Key risks of trading prediction event contracts
Although prediction markets provide avenues for speculation or hedging on future occurrences, they come with considerable risks. Understanding these factors is crucial before entering these markets:
1. Market and event risk
Uncertainties abound, as occurrences and non-occurrences are unpredictable. Unanticipated news, data releases, or events can lead to swift and significant fluctuations in contract prices, causing rapid losses. Even if you believe the probability favors you, market sentiment may overturn before settlement.
2. Liquidity risk
Some contracts might experience low trading volumes, complicating your ability to exit positions swiftly and potentially resulting in wider bid-ask spreads and unfavorable pricing.
3. Information and timing risk
Prediction contracts hinge on publicly available information that may evolve rapidly. Traders who react sluggishly to new data or rely on incomplete information can find themselves at a disadvantage when entering or exiting positions.
4. Counterparty and operational risk
Although event contracts on Crypto.com settle automatically, potential operational delays or disputes over third-party data may temporarily hinder settlements. Be aware that resolutions may take more time when the occurrence is contested.
5. Leverage and exposure risk
While the contracts themselves aren’t leveraged products, concentrating excessive capital in a single event can lead to oversized losses. It’s prudent to limit position sizes and diversify across unrelated events to mitigate overall exposure.
6. Psychological and behavioral risk
Overconfidence, emotional trading, and the impulse to ‘chase’ losses are common pitfalls. Maintaining discipline and trading with only funds you can afford to lose is essential for responsible participation.
Prediction event contracts are speculative instruments. Prices may experience significant fluctuations, and previous market behavior does not guarantee future results. Always consider your financial situation, risk tolerance, and experience before engaging.
Risk management strategies for prediction contracts
Essential tools for managing market risk include:
- **Appropriate position sizing** – The most important risk management factor. Keep individual positions small, typically between 1-3% of your total capital for high-conviction trades. This conserves capital while keeping exposure to potential gains.
- **Diversification across markets** – Spreading investments across uncorrelated events can lower portfolio volatility. Avoid concentrating positions in related markets which might move together during higher market stress.
- **Hedging strategies** – Protect existing positions by taking smaller opposing positions in correlated markets to mitigate overall exposure, sacrificing some profit potential to reduce risk.
- **Information advantage** – Focus on areas where you possess superior knowledge through experience or dedicated research. Avoid markets where you lack a competitive informational edge, as nobody is an expert in every sector.
- **Psychological considerations** – A crucial element in prediction market success. Avoid emotional decision-making, maintain discipline, and set predetermined rules for entering and exiting trades. These aspects become manageable if position sizing starts appropriately.
New traders often face common pitfalls, including overconfidence bias, following crowd sentiment without independent analysis, trading excessively when starting out, or neglecting to consider time value until positions expire.
Advanced strategies for experienced prediction market participants
Once you become familiar with trading event contracts, consider implementing advanced strategies:
- **Arbitrage opportunities** – Occasionally, the same event is priced differently across multiple contracts. Identifying and executing these opportunities can yield risk-free profits, though they typically require substantial capital and keen observation.
- **Timing strategies** – Enter and exit positions based on market dynamics and information flow. Early positions may offer better probabilities but longer risks, while late entries could present reduced upside with greater certainty.
- **Market making** – This strategy involves creating liquidity by placing both buy and sell orders, profiting from bid-ask spreads. It requires extensive market knowledge and constant monitoring to deliver consistent returns in liquid markets.
- **Statistical approaches** – Identify mispriced contracts through systematic analysis, including comparative platform probabilities and historical prediction accuracy.
- **Information analysis frameworks** – Tailor your approach according to market type. Sports markets might prioritize team statistics, while cryptocurrency markets could focus on technical analysis and regulatory developments.
- **Portfolio approaches** – Treat participation in prediction markets as part of a broader investment strategy, balancing your positions across various time horizons, risk levels, and event types to achieve desired risk-return profiles.
Tax and regulatory considerations for prediction market earnings
Typically, earnings from prediction markets fall under capital gains tax treatment in most jurisdictions, though specific tax rules can vary. For instance, short-term gains (positions held for less than one year) may incur higher tax rates than long-term holdings.
As the regulatory landscape for prediction markets continues to evolve, staying informed about changes in your jurisdiction that may affect the legal standing or tax treatment of such markets is vital.
To shield yourself, keeping detailed records of all trades is best practice. This includes documenting entry and exit prices, tracking fees, and preserving contract resolution notes. While we can generally provide transaction history, maintaining independent records can ensure accuracy. Track your prediction market earnings and ensure compliance with local regulations.
If uncertain about your tax liability, consulting with a tax professional who specializes in cryptocurrency and prediction market regulations can provide personalized guidance. Always feel free to reach out to your local tax office for any inquiries.
The future of prediction markets on Crypto.com
We continually invest in enhancing user experience on our platform, including improving app features, expanding contract types, and introducing advanced analytical tools. These developments are focused on refining user experience and enhancing our market offerings.
As mainstream cryptocurrency adoption grows, we anticipate an increase in participation in cryptocurrency-related prediction markets. This trend might see these markets evolving into critical tools for price discovery and risk management across the financial ecosystem.
Potential market categories could expand into new areas such as emerging technologies, environmental predictions, and demographic trends, where collective intelligence could yield valuable insights.
Integration possibilities with other Crypto.com services could foster synergies between prediction markets, traditional trading practices, and other platform features, offering users expanded portfolio management tools. Leveraging AI and data analytics may also enhance market analysis tools, automate opportunities alerts, and improve risk management strategies.
Prediction markets signify an evolution towards more efficient information aggregation, and as these markets mature, they may increasingly shape decision-making and profit opportunities within the broader financial system.
FAQs about event contract payout structures
What are prediction event contracts on Crypto.com?
Prediction event contracts allow users to speculate or hedge on the occurrence of future events, with prices reflecting the market’s assessed probabilities.
How do prediction contracts differ from traditional betting?
Unlike fixed-probability betting, prediction contracts use market-driven pricing that continuously adjusts based on participant supply and demand.
What types of prediction contracts are available?
Crypto.com provides scalar, categorical, and conditional contracts that cover the occurrence, non-occurrence, or degree to which a specified event occurs, including yes/no events, ranges, multiple scenarios, and if-then setups.
How are potential returns calculated?
Potential returns are computed as (1 – purchase price) ÷ purchase price, reflecting the payoff if the contract event occurs.
What are key strategies for managing risk in prediction markets?
Effective risk management involves limiting position sizes, diversifying across events, hedging, and leveraging personal technical knowledge in areas where you have an information advantage.
Important information: This content is for informational purposes only and does not constitute financial advice. Event Contract markets are volatile and carry risk. Please consult a financial adviser before making investment decisions.
Prediction is an event contract that is a derivatives product offered by Crypto.com | Derivatives North America (CDNA), a CFTC-regulated exchange. Trading on CDNA involves risk and may not be appropriate for all. By trading, you risk losing your entry costs to any transaction, including fees. Carefully consider whether trading on CDNA is suitable for you, considering your investment experience and financial resources. Any trading decisions you make are solely your responsibility and at your own risk.