Financial markets are often described as hating uncertainty. In reality, uncertainty is always present. What truly matters is the degree of uncertainty and how widely views on potential outcomes are dispersed across the distribution of possibilities.

Traders continuously anticipate, process and react to news, economic data, on-chain metrics, and price action to form probabilistic views about the future. When market participants believe the probability distribution is sufficiently skewed toward a particular outcome, they may choose to enter a trade and manage the associated risk while the position remains open.

In that sense, traders are essentially risk managers, constantly attempting to price uncertainty and probability as efficiently as possible. The more effectively this process is executed, the more controlled drawdowns tend to be and the stronger the long-term outcomes for the trading P&L.

When Uncertainty Increases, Markets Move Faster

The trading environment can change rapidly when a highly impactful event enters the market narrative.

Sometimes these events are scheduled. Federal Reserve meetings, US non-farm payrolls, and inflation releases are obvious examples. At other times the catalyst is sudden and unscheduled, such as an escalation in geopolitical tensions or an unexpected policy announcement.

When market participants begin to consider a wider range of possible outcomes, conviction around pricing risk tends to fall. As a result, liquidity in order books often declines and markets can become significantly more volatile.

This dynamic is well understood by experienced traders. When uncertainty increases, the distribution of potential outcomes widens, liquidity in the order books typically thins, and price action tends to become faster, less predictable, and more sensitive to incoming information.

The Rise of Prediction Markets

In recent years, prediction markets have emerged as a useful tool for traders attempting to gauge real-time probabilities around major events.

These platforms create tradeable markets that allow participants to express a direct view on the likelihood of a specific outcome. Rather than trading traditional assets such as equities or currencies, participants trade contracts linked to whether an event will occur.

Examples might include:

• Whether the Federal Reserve will cut interest rates at the next meeting
• Whether inflation will exceed expectations
• The outcome of political elections
• The probability of geopolitical developments

Liquidity remains highly concentrated on a handful of venues such as Kalshi and Polymarket, which account for the vast majority of trading volume.

How Prediction Markets Work

Many prediction markets operate through a central limit order book, meaning prices are determined by the weight of money placed by participants.

In practical terms, the price of a contract reflects the market’s collective view of the probability that a particular outcome will occur.

For example, if a contract trades at 70 cents, the market is effectively implying a 70% probability that the event will take place.

This mechanism transforms subjective opinions into quantifiable probabilities, allowing traders to observe how the broader market is positioning around key events.

Rapid Growth and Institutional Participation

Prediction markets have expanded rapidly in recent years. Dozens of platforms now operate globally, although liquidity is concentrated on a small number of dominant venues.

In 2025 alone, roughly up to $60 billion in volume traded across prediction market platforms.

Improving liquidity has made these markets more informative. Individual contracts now trade with meaningful depth, and probabilities can adjust quickly when new information enters the market.

Institutional participation has also increased. This helps explain why probabilities in prediction markets often move rapidly when breaking news hits the tape.

Interestingly, the probabilities implied in these markets frequently align with pricing in traditional financial instruments such as:

• Fed Funds futures
• SOFR futures
• Overnight index swaps

All of which are widely used to assess expectations around future interest rate decisions.

For traders without direct access to these institutional markets, prediction platforms can therefore offer a useful proxy for understanding how the market is pricing potential outcomes.

Why Crypto Traders Are Paying Attention

For traders active in crypto markets, prediction platforms can provide additional context around macro events that may influence price action.

Bitcoin’s sensitivity to economic data and macro developments shifts over time, but historically there has been a measurable reaction around major releases.

Looking at the past twelve US non-farm payroll reports, data from Bloomberg has shown that Bitcoin has moved an average of 0.6% within the first thirty minutes after the data is released.

Traders are increasingly combining macro data, prediction market probabilities and price action to navigate crypto volatility. According to Chris Weston, Head of Research at Pepperstone, monitoring how expectations evolve ahead of major economic releases can help traders better anticipate short-term moves in assets such as Bitcoin and other digital assets.

This approach allows traders to compare market expectations with actual price behaviour, particularly during high-impact events when volatility tends to accelerate.

While that may not sound significant, the move can be meaningful for traders operating on short timeframes or using leverage.

Managing risk around these types of events therefore remains critical.

Prediction markets can help traders gauge what the broader market expects ahead of major announcements. From there, traders can develop their own probabilistic view on how Bitcoin or other assets may react depending on the outcome.

Why the Price Action for Bitcoin Still Matters Most

Despite the growing popularity of prediction markets, price action remains the most important signal for traders.

Price represents the aggregation of every order, every belief, and every position in the market at any given moment. It is the purest expression of supply and demand.

Tools such as prediction markets can help traders understand expectations and identify potential catalysts. However, they should be viewed as an additional layer of information rather than a definitive signal.

In periods of heightened uncertainty, drawing on multiple sources of information can help traders better understand probabilities and manage risk as events unfold.

As crypto markets continue to react to macro developments, traders are increasingly combining prediction markets, economic data and price action to assess probabilities and manage risk. Platforms such as Pepperstone lets traders access crypto and global markets with transparent 0.1% fees and is operating within Australia’s AML/CTF regulatory framework administered by AUSTRAC, giving them the confidence to act on opportunities as they unfold.

But ultimately, it is the behaviour of price that guides trading decisions.

This post is commissioned by Pepperstone and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.