Coinbase Report: Geopolitical Risks Ease, Stablecoins Emerge as Silent Winners in Prediction Markets

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The latest research report from Coinbase highlights a shifting landscape in global markets, where easing geopolitical tensions and evolving regulatory frameworks are paving the way for new opportunities in the crypto ecosystem. As macroeconomic concerns take a backseat and investor sentiment stabilizes, one segment is quietly gaining momentum: prediction markets, with stablecoins like USDC emerging as critical infrastructure behind the scenes.

This report dives into the key trends shaping the market — from de-escalating conflicts in the Middle East to regulatory milestones and rising consumer adoption of decentralized applications. At the heart of it all is a growing realization: stable digital assets are no longer just tools for remittances or hedging volatility. They're now powering real-time decision-making platforms, fueling innovation, and enabling frictionless on-chain settlements at scale.

Geopolitical Tensions Cool — Market Confidence Rises

Since the ceasefire agreement between Israel and Iran on June 23, financial markets have seen a notable rebound. The COIN50 Index, which tracks major crypto assets, has moved in tandem with U.S. equities, reflecting renewed investor confidence.

Market indicators support this shift. Bitcoin’s 30-day 25-delta put-call skew — a measure of demand for downside protection — spiked briefly but has since declined. Meanwhile, longer-dated options (90 and 180 days) remain in negative skew territory, suggesting investors are positioning for upside exposure without committing large capital upfront. This pattern reflects a mild preference for out-of-the-money call options, indicating optimism about future price appreciation.

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Short-term implied volatility has dropped sharply across weekly and monthly contracts, reducing the attractiveness of volatility-selling strategies. While uncertainty remains about potential flare-ups, the most likely scenarios involve either a fragile status quo or limited military escalation — neither of which currently point to systemic disruption.

A closure of the Strait of Hormuz — a key chokepoint for 20% of global oil consumption — would be a major red line. However, such an event appears unlikely given mutual economic disincentives and the stabilizing effect of the recent truce.

As a result, a “buy-the-dip” strategy during geopolitical shocks remains viable, consistent with Coinbase’s latest monthly market outlook.

Trade Tariffs Fade as Inflation Concerns Shift

With the July 9 deadline for reciprocal tariff suspensions approaching (August 12 for China), progress on trade deals remains limited despite partial agreements on rare earth shipments and proposals submitted to the EU. Yet both traditional and crypto markets have largely shrugged off these risks.

Federal Reserve Chair Jerome Powell acknowledged during congressional testimony that tariffs could influence inflation later in the summer. However, goods make up only about 20–25% of the core CPI basket, and it's unclear whether companies will pass full costs onto consumers.

More importantly, service sector prices have been trending downward since mid-2024 and are increasingly influenced by long-term structural shifts like AI-driven productivity gains. In fact, tariffs may exert deflationary pressure by dampening aggregate demand — further supporting the case for Fed rate cuts in the second half of 2025.

This dynamic helps explain market complacency around trade tensions — a sentiment likely to persist through upcoming deadlines. Overall, trade barriers do not appear to threaten Coinbase’s constructive outlook for Q3 2025.

Regulatory Momentum Builds for Digital Assets

U.S. crypto regulation is advancing on multiple fronts:

On the banking front, the Federal Reserve announced it will no longer use reputational risk as a factor in bank supervision — a move seen as rolling back elements of "Operation Chokepoint 2.0." This change could ease banking access for crypto businesses, which previously faced systemic exclusion due to subjective risk assessments.

Polymarket: The Rise of Consumer-Focused Crypto Apps

This week marked a milestone for decentralized prediction markets as Polymarket pursued a $1 billion valuation backed by Founders Fund — positioning itself as crypto’s newest unicorn.

Just one day later, regulated competitor Kalshi closed an $185 million round at a $2 billion valuation, underscoring investor enthusiasm for consumer-facing distribution over pure liquidity plays like DEXs or layer-1 chains.

Polymarket’s traction is impressive:

Despite regulatory restrictions preventing U.S. users from trading, its growth shows strong appeal beyond crypto-native audiences.

A new content partnership with X (formerly Twitter) integrates prediction markets into social feeds, transforming them into viral, interactive experiences rather than just financial instruments. This fusion of entertainment, information, and micro-betting is accelerating adoption.

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Stablecoins: The Hidden Engine Behind Prediction Markets

While much attention goes to platforms and user growth, stablecoins — particularly USDC — are the unsung heroes enabling this ecosystem.

Polymarket settles all trades on Polygon using USDC, creating consistent on-chain payment flows. During high-visibility events — such as the November 2024 U.S. election cycle — monthly trading volume surged to $2.5 billion, triggering spikes in USDC transfers and cross-chain bridge activity.

Unlike lending protocols that lock up large TVL (Total Value Locked), prediction markets generate rapid capital turnover. Each bet, settlement, and payout creates multiple on-chain transactions — driving real utility for stable digital currencies.

This high-frequency settlement model positions stablecoins not just as stores of value, but as essential rails for real-time digital economies.

Market Update: Consolidation Ahead of Next Move

Bitcoin continues to hold near the $100,000 level while broader markets consolidate. Perpetual swap funding rates remain in low single digits, and open interest suggests neutral positioning — conditions that often precede strong directional moves.

On the institutional front:

These developments reflect deepening integration between traditional finance and digital assets.

Frequently Asked Questions

Q: Why are stablecoins important for prediction markets?
A: Stablecoins provide price stability and fast settlement, making them ideal for frequent micro-transactions in event-based betting platforms like Polymarket.

Q: How does reduced geopolitical risk affect crypto markets?
A: Lower tension improves investor sentiment and reduces demand for short-term hedges, allowing capital to flow into growth-oriented digital assets.

Q: What is the significance of Polymarket’s $1B valuation?
A: It signals investor confidence in consumer-facing Web3 apps, especially those blending social interaction with financial incentives.

Q: Are prediction markets legal in the U.S.?
A: While some platforms operate under regulatory scrutiny, Kalshi holds CFTC approval for certain event contracts. Others like Polymarket restrict U.S. access pending clearer rules.

Q: How might Fed rate cuts impact crypto?
A: Lower rates reduce bond yields, pushing investors toward alternative assets like Bitcoin and Ethereum for higher returns.

Q: Can stablecoin usage indicate broader market trends?
A: Yes — spikes in USDC or DAI transfer volume often correlate with increased DeFi activity, NFT trading, or real-world events driving speculative behavior.

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