Key Moments:
- BofA strategists have warned that the rapid growth of online prediction markets may increase consumer credit stress.
- Low-income individuals and young men have been identified as most vulnerable to gambling-related financial hardships.
- Kalshi and Polymarket reached over $8.5 billion in monthly notional trading volume in October, marking a record for these platforms.
Escalating Risks Linked to Online Betting Platforms
Bank of America (BofA) has reportedly expressed concerns regarding the accelerated rise of online betting and prediction markets, emphasizing that these developments could become a significant driver of consumer debt issues. In a research note referenced by Bloomberg, strategists under Mihir Bhatia have outlined the potential risks, stating that the surge in event-based betting makes consumers more susceptible to accumulating unmanageable debt and falling behind on loan payments.
BofA has observed that the prevalence of digital wagering, propelled by the dismantling of the federal prohibition on sports betting, has led to broader participation and an increase in speculative contracts relating to real-world events across platforms like Kalshi and Polymarket. This trend, the bank suggests, is amplified by frictionless access and interfaces designed to encourage impulsive activity.
“Easy access and gamified interfaces encourage frequent and impulsive wagers,” the strategists wrote. “For investors, this convergence of entertainment and speculative finance signals heightened behavioural risk that could pressure credit quality, increase delinquencies, and impact earnings for issuers and subprime lenders.”
Vulnerable Groups Face Heightened Exposure
According to BofA, the most acute impact is likely to be felt in segments such as low-income consumers and young men. These groups, the bank notes, are frequently linked to elevated levels of gambling and corresponding volatility in credit use, raising alarms about long-term financial stability.
Supporting these concerns, academic findings from the UCLA Anderson School of Management and the University of Southern California highlighted that in jurisdictions permitting online betting, average credit scores decreased by nearly one percent within four years, the risk of bankruptcy rose by 28 percent, and debt sent to collections increased by eight percent.
The bank added that aggressive marketing from betting operators “amplifies participation and translates into rising credit balances and increased loss severity for lenders.”
Market Participants Facing Elevated Risk
BofA cited Bread Financial Holdings, Upstart Holdings, and OneMain Holdings as companies most exposed to this emerging financial strain, as these firms typically serve customers with lower incomes or stressed credit profiles.
The strategists noted, “Online betting markets introduce a new risk for lenders, one that they have not had to deal with historically and underwriting models may need to be adapted.”
| Company | Exposure Type |
|---|---|
| Bread Financial Holdings | Lower income/credit-stressed customers |
| Upstart Holdings | Lower income/credit-stressed customers |
| OneMain Holdings | Lower income/credit-stressed customers |
Consumer Warning Signs and Market Expansion
Emerging consumer data suggests growing strains, with one US News survey cited by BofA revealing that 25 percent of bettors had missed a bill payment, and 45 percent did not possess enough savings to meet three to six months of expenses.
At the same time, the sector has seen unprecedented activity. Dune Analytics data shows that Kalshi and Polymarket jointly achieved a notional trading volume of more than $8.5 billion in October, setting new records. Kalshi, in particular, closed the month with approximately $4.4 billion in trading volume, a figure that stands out both for the company and the regulated prediction market industry at large.
Polymarket also posted a strong rebound in October, following a period just months earlier when monthly active traders had fallen as low as 227,420 in August.
Blurred Lines Between Finance and Gambling
Kalshi’s offering of sports-related contracts nationwide under a financial-exchange license, even amid some opposition from state gaming authorities, has contributed to its prominence. The bank observed that these products, which are marketed as forecasting instruments, operate in a gray area.
“Their mobile-first design and gamified interfaces mirror sports betting platforms, blurring the line between investing and gambling,” BofA wrote. According to the bank, this overlap increases the risks of compulsive habits and financial stress, particularly among younger and lower-income participants.
Instances of Market Manipulation Highlight Concerns
Recent developments have underscored the susceptibility of prediction markets to manipulation. For instance, a high-profile event at the White House involving US President Donald Trump and Saudi Crown Prince Mohammed bin Salman drew attention when the Crown Prince referenced online wagers concerning his attire, remarking, “Sorry, you lose the bet. Better luck next time!”
In another example, Coinbase CEO Brian Armstrong’s closing remarks during the company’s third-quarter earnings call included the terms, “Bitcoin, Ethereum, blockchain, staking, and Web3”, resulting in the closure of contracts tied to those keywords. Kalshi and Polymarket users had staked roughly $84,000 on related terms such as “stablecoin”, “institution”, and “margin.” Armstrong later mentioned the event on X.
- Author
Daniel Williams
