An analysis of prediction market signals for the 2025-2026 period reveals high conviction on Fed easing, significant political uncertainty, and divergent crypto narratives. This note dissects actionable trading themes, key catalysts, and embedded risks.
Prediction market data for the Macro & Rates desk indicates a market grappling with three core macro narratives for the 2025-2026 period. First, there is near-unanimous conviction (99% probability) that the Federal Reserve will execute three 25-basis-point rate cuts in 2025, totaling 75 bps. Second, political volatility is priced as a material tail risk, with a 50% implied probability of a change in the U.S. Presidency before year-end 2025. Third, cryptocurrency markets exhibit a cautious-to-bullish skew, with low probabilities assigned to extreme bullish outcomes for Bitcoin and Ethereum, but meaningful volume suggesting hedging and speculation around key price levels.
Contradictions are present, particularly within the Fed outlook, where markets assign only a 6% probability to a two-cut scenario, creating a steep skew. The high trading volume across these contracts, especially in political and crypto markets, underscores their use as primary risk-management and speculative instruments. Traders should focus on the asymmetry in Fed pricing, the binary nature of political risk, and the defined resistance levels in crypto as focal points for position construction.
1. Federal Reserve Policy: A Conviction Bet on Aggressive Easing
The centerpiece of the macro narrative is the 'Will the Fed cut rates 3 times?' contract, trading at a 99% probability with $5.1M in volume. This represents an extraordinarily high degree of market certainty. The complementary contract for two cuts ('Will the Fed cut rates 2 times?') sits at just a 6% probability ($4.6M volume). This disparity creates a compelling asymmetry.
Insight for Traders: The market is effectively pricing a 'three-cut-or-more' scenario. A short position in the '3 cuts' contract at 99% offers a positively skewed risk/reward profile. The premium paid for this near-certainty is high, and any deterioration in the inflation or employment data that pushes the Fed towards a more hawkish pause or slower pace would cause this probability to decay rapidly. Conversely, the '2 cuts' contract at 6% could serve as a cheap hedge against a more resilient economy. The wide gap between these two outcomes is the primary trading opportunity within the Fed complex.
Catalysts & Risks: Key catalysts include the monthly CPI and PCE prints, Non-Farm Payrolls reports, and FOMC meeting language (particularly the dot plot). The primary risk to the dominant narrative is stickier-than-expected services inflation or a re-acceleration in wage growth. The 'Powell leaves before 2026?' contract at a mere 1% probability ($6.4M volume) indicates markets see near-zero chance of leadership disruption at the Fed, removing a source of policy uncertainty.
2. Political Risk: Elevated Uncertainty in the Executive Branch
The 'Donald Trump out this year?' market is the highest-volume contract in this dataset at $9.7M, trading at a 50% probability. This is a striking signal, assigning a coin-flip chance to a non-routine presidential exit before the end of 2025.
Insight for Traders: This market functions as a high-stakes binary option on political stability. At 50%, it is priced for maximum uncertainty, implying that information flow (e.g., health reports, legal developments, political maneuvers) will have an immediate and dramatic impact on price. Directional bets here are highly speculative. A more nuanced strategy involves using this market as a hedge for portfolios sensitive to regulatory or fiscal policy shifts that would differ under a new administration.
Catalysts & Risks: Catalysts are inherently non-economic and unpredictable: health events, major political scandals, or unforeseen resignation pressures. The high volume suggests institutional players are actively using this market to hedge tail risks that are difficult to model or insure against in traditional asset classes. Historical context is limited, as no similar prediction market for an incumbent president exiting office early has traded with such liquidity.
3. Cryptocurrency Markets: Bullish Sentiment with Cautious Boundaries
Crypto markets display nuanced positioning. The flagship 'Will Bitcoin be above $100,000 by Dec 31, 2025?' contract trades at a 13% probability ($5.0M volume). This is a direct, time-bound bull bet. The various 'how high' markets provide a probability distribution for the 2024 peak:
Conversely, the 'How low will Bitcoin get this year?' contract for $80,000.01 or above trades at a 38% probability ($4.9M volume), suggesting a roughly one-in-three chance Bitcoin stays above this support level throughout the year.
Insight for Traders: The collective data paints a picture of a market expecting strong performance but skeptical of hyperbolic price targets. The significant volume in the low-probability, high-strike contracts ($130k/$140k) suggests they are being used as cheap lottery tickets or as financing legs in more complex option structures. The more probable $100k-end-year and $80k-support markets are likely where core directional views are expressed. The disparity in volume between Bitcoin and Ethereum targets may indicate traders view Bitcoin's trajectory as more pivotal to the macro-crypto narrative.
Catalysts & Risks: Key catalysts include Bitcoin ETF inflow/outflow data, regulatory clarity (particularly on spot Ethereum ETFs), and broader risk asset sentiment tied to Fed liquidity. A failure to hold above the psychologically important $80k level (a 62% probability is assigned to falling below it) could trigger a deeper correction. The low probabilities on extreme highs suggest the market does not currently foresee a retail-fueled 'mania' phase akin to late 2017 or late 2020.
The interplay between these markets suggests several macro correlations:
Recommended Desk Focus:
The prediction markets present a landscape where a soft landing and aggressive Fed easing are considered the base case, but this consensus is surrounded by significant binary risks—political upheaval and the boom/bust potential in digital assets. The high trading volumes confirm these contracts are central to modern risk management.
For the Macro & Rates desk, the immediate opportunity lies in the mispricing of certainty around the Fed's cutting cycle. The political market serves as a critical, albeit expensive, volatility and hedge monitor. Crypto markets offer clear, consensus-defined price levels to gauge the health of the risk appetite fueled by the expected Fed liquidity. Navigating 2025 will require balancing the strong directional signal from rates markets with vigilant management of the high-stakes, low-probability events in the political and crypto spheres.
Current Probability: 99.0%
Market cornerstone. Near-unanimous consensus priced in. Risk is asymmetric to the downside; any hawkish shift in data will rapidly reprice this contract. Primary trading focus for the desk.
Current Probability: 50.0%
Highest-volume market, signaling profound political uncertainty. Functions as a binary volatility index. Not for directional speculation but for tail-risk hedging.
Current Probability: 13.0%
Core crypto directional bet. Probability suggests belief in strong performance but skepticism of parabolic move. Key level to monitor for shifts in macro-crypto sentiment.
Current Probability: 38.0%
Implies 62% chance Bitcoin trades below $80k at some point in 2024. Defines a key support level; breach could signal a deeper correction and challenge the bullish year-end thesis.