What a shocking revelation during Thanksgiving week. The prediction markets business was shocked late on Tuesday when Robinhood Markets (NASDAQ: HOOD) revealed what is essentially a stand-alone strategy.

The financial services company announced that it is expanding its presence in predictions markets, which have emerged as one of its fastest-growing categories, by establishing a futures and derivatives exchange and clearinghouse. Robinhood's first source of liquidity will be Susquehanna International Group, a prominent market-making company; more market makers are anticipated to enter the competition later on.

"The venture will accelerate delivery of its services by acquiring MIAXdx, a CFTC-licensed Designated Contract Market (DCM), Derivatives Clearing Organization (DCO) and Swap Execution Facility (SEF), and wholly-owned subsidiary of Miami International Holdings, Inc. (MIAX®) (NYSE: MIAX). MIAX will remain invested through a strategic 10% equity stake in the exchange,” according to a statement.

To put it simply, Robinhood is purchasing MIAXdx in order to secure the licenses required to run prediction markets in the US. This is a strategy adopted by competitors in the industry to expedite market entry rather than waiting for regulators to approve permission applications.

Kalshi Could Be Affected by Robinhood News

The fact that the stock has increased by almost 11% in late trade indicates that Robinhood investors are pleased with the news. However, investors—including venture capitalists—who recently drove Kalshi's private valuation to unprecedented heights are surely not applauding Robinhood's action.

According to some estimates, Robinhood accounts for 25% to 35% of Kalshi's daily volume, and the two businesses split the economics of what amounted to a distributor/content provider partnership evenly. In social media groups for prediction markets, the general consensus was that the partnership was comfortable, beneficial to both businesses, and didn't need to be disrupted.

Even though Robinhood handled 2.3 billion event contract trades in the third quarter—more than twice as many as in the June quarter—"Kalshi bros" persisted in their conviction that Robinhood wouldn't enter the prediction markets sector on its own.

This is taking place, and the announcement came just a few days after it was reported that Kalshi had raised $1 billion in fresh funding, raising its valuation to $11 billion—more than twice what it was only last month. When viewed in a different light, investors who invested in Kalshi at $5 billion and $11 billion multiples probably failed to take into consideration the potential for Robinhood to operate independently in prediction markets, even if they ought to have done so.

Anticipate Robinhood's Significance in Prediction Markets

Robinhood has all it needs to become a major player in event contracts, including significant technological expertise and an expanding clientele that is passionate about betting and prediction markets.

“Prediction Markets have quickly become Robinhood’s fastest-growing product line by revenue. Just one year since launch, 9 billion contracts have been traded by more than 1 million Robinhood customers,” according to the press release. “By introducing a robust, institutional-grade exchange to the market, we’ll add more choices for consumers. We’ll also gain the flexibility to build faster and deliver more contracts and services to traders.”

According to some observers, DraftKings, FanDuel, Kalshi, Polymarket, and Robinhood will become a five-horse race in the US prediction markets market.