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- Vitalik Buterin says prediction markets lack liquidity, yields, and participant diversity, making them poor hedging tools

- Ethereum hits $4,956 ATH as traders weigh risk strategies and institutions expand ETH purchases amid rising optimism

Ethereum's co-founder Vitalik Buterin has questioned the effectiveness of prediction markets as hedging tools just as the %Cryptocurrency reached a new all-time high of $4,956. The comments arrive during a period of heightened demand for protective financial strategies, with traders seeking ways to manage risk as prices advance toward the $5,000 mark.

In a recent post on Farcaster, Buterin argued that existing prediction markets lack the fundamental qualities that make traditional hedging instruments effective. He noted that most platforms do not pay interest, forcing participants to sacrifice the guaranteed yields available in conventional markets. This feature, he said, makes them "very unappealing for hedging" despite increased visibility in recent years.

The %Ethereum (CRYPTO: $ETH ) co-founder drew comparisons with established markets such as S&P 500 and Treasury futures. These products, he explained, benefit from deep liquidity, low costs, standardized structures, and a wide base of participants with different motivations. Such elements ensure accurate pricing and efficient risk transfer, conditions missing in many crypto-based prediction platforms.

Lack of Participant Diversity

According to Buterin, prediction markets often attract outcome-focused speculators rather than hedgers, undermining their function as risk management tools. Without the diversity of participants seen in traditional markets, these platforms fail to generate the liquidity and balance required for effective hedging. The absence of consistent, risk-transfer trading activity leaves prediction markets unable to replicate the efficiency of well-developed financial systems.

Ethereum's Rally and Growing Market Debate

Buterin's remarks coincided with Ethereum posting an 8% weekly gain and reaching its highest valuation on record. The price surge has renewed focus on approaches to protect profits amid growing capital inflows into crypto assets. Institutional activity has also intensified, with Tom Lee's %BitMine purchasing an additional $45 million worth of ETH following the latest upswing.

Meanwhile, prediction market platforms such as Polymarket and Kalshi continue to attract rising volumes, with Kalshi recently achieving a $2 billion valuation. Regulatory bodies including the SEC and CFTC have struggled to impose clear oversight on the sector.

Industry figures have expressed contrasting views on Ethereum's trajectory. BitMEX co-founder Arthur Hayes recently repurchased ETH and suggested a possible price target of $20,000 this cycle. While optimism remains strong among traders, Buterin's caution points to a gap in available hedging instruments, pointing to potential future development in crypto derivatives and structured products.