The ETF industry, following the launch of spot Bitcoin ETFs, is now exploring prediction markets as a new underlying exposure.Singapore Summit: Meet the largest APAC brokers you know (and those you still don't!).Bitwise Asset Management and Roundhill Investments have filed applications with the SEC to launch ETFs tied to prediction market contracts.ETFs as a Distribution LayerThe initial filings focus on political events — contracts like "Democratic president wins 2028 election" or "Republican president wins 2028 election."The logic mirrors what happened with Bitcoin. Investors can already open accounts directly on platforms like Kalshi or Polymarket, but many won't — or can't. An ETF solves that by letting them gain exposure through standard brokerage accounts."If you think about the ETF industry writ large... it takes interesting financial applications and packages them into an easy wrapper that people can access," Bitwise CIO Matt Hougan said on the Trillions podcast."I think prediction markets are one of the most important new financial ideas maybe since crypto and if we can package them in an ETF you will see extensive use of them in various portfolio settings" - @Matt_Hougan on Trillions re prediction market ETFs, which are likely coming… pic.twitter.com/PECCdbNBzE— Eric Balchunas (@EricBalchunas) April 9, 2026"This is a natural extension of that."On the mechanics side, the ETFs would hold either the underlying prediction market contracts directly or use swaps with institutional counterparties to replicate contract performance.Why Issuers Are Starting with PoliticsThe focus on politics is deliberate. Sports-related contracts are currently under pressure from state gambling regulators, and issuers are steering clear. "The presidential election will impact huge numbers of investments. Whether Michigan beats UConn or not will not impact a huge number of investments," Hougan said. By anchoring the products to events with clear financial and economic implications, issuers are positioning them as hedging tools rather than gambling proxies.Regulatory Path Is UnclearThe path to launch isn't guaranteed. The SEC will scrutinize liquidity in the underlying contracts and disclosure quality. Hougan described the process as a "dance" — lining up trading partnerships, confirming swap counterparties, building the infrastructure regulators will want to see before approval.The precedent from Bitcoin ETFs matters here. That process was long and contentious, but it ultimately worked, and it left the industry with a clearer playbook for taking unconventional products through SEC review.For brokers and asset managers, the signal is straightforward: the same machinery that brought crypto into mainstream portfolios is now being pointed at prediction markets. If these filings succeed, they open a new asset class to retail and institutional investors alike — and reshape how market participants hedge exposure to political and macroeconomic outcomes.This article was written by Tanya Chepkova at www.financemagnates.com.