For years, perpetual futures have been a staple in the crypto trading world, particularly among international investors. Now, with their arrival in the US market, Wall Street is grappling with the question of whether they represent a fleeting trend or a lasting challenge to traditional futures. The initial numbers are certainly impressive, with Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch in June, making it the company's most successful product debut since prediction markets.
The exchange has since sought regulatory approval to offer perpetual futures tied to gold and silver, indicating that the product may expand beyond bitcoin and other digital assets. Perpetual futures, also known as 'perps', are similar to standard futures contracts but lack an expiration date, eliminating the need for traders to close or roll over positions. Instead, periodic funding payments help maintain the contract's price in line with the underlying asset. This product has become a cornerstone of global crypto trading, with Bank of America estimating annual perpetual futures volume at approximately $90 trillion.
On May 29, the Commodity Futures Trading Commission (CFTC) granted Kalshi approval to offer these contracts, and Coinbase also received clearance to list regulated perpetual futures in the US. However, within Wall Street, interest in perps does not necessarily translate to immediate adoption. While discussions about perps are becoming more frequent, particularly as US regulators allow offshore markets to move onshore, most large financial institutions are still in the process of studying these products rather than preparing for major launches. The first movers are likely to be proprietary trading firms, market makers, and newer clearing firms, which have more freedom to test new venues and accept operational risks due to their ability to trade with their own capital.
In contrast, big banks face stricter capital rules, client obligations, and reputational risks, making them more cautious in their approach. The difference in approach between these groups is significant because the term 'Wall Street' encompasses various entities moving at different speeds. Individual traders and smaller firms often lead the way, followed by market makers once volume increases. Banks, however, typically require years of data, clear regulatory frameworks, and stable infrastructure before committing substantial resources.
Despite this, the potential applications of perps extend beyond speculation. They could help traders manage weekend risk, as traditional futures markets are closed for part of the weekend, leaving traders exposed. A liquid 24-hour perpetual market could provide a solution, allowing firms to adjust positions in real-time and use weekend prices to estimate where CME futures may reopen, making perps useful for both hedging and price discovery. According to an industry insider, 'the demand has to be there, or the capital won't be', implying that firms will not commit to perps until customer activity justifies it.
The main challenge lies in depth, as a contract may trade around the clock but still lack the liquidity needed for institutions to move large positions without impacting the market. Weekend liquidity remains thin, and collateral systems do not always move as quickly as the markets they support. Furthermore, a regulatory battle is emerging, with key questions surrounding the treatment of perpetual contracts as either futures or swaps, which affects margin rules, registration duties, and who can provide liquidity. Industry insiders suggest that these legal questions may become more pressing as exchanges expand perps into commodities, equities, and other traditional markets.
The debate is also becoming competitive, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and arguing for different regulation. Similar disputes may arise if exchanges seek to expand perps into other asset classes. As one industry insider noted, 'a lot of this stuff... is more commercial than people are going to admit to out loud', suggesting that some opposition reflects incumbent exchanges protecting their existing businesses as much as concerns about market structure.
For now, Wall Street's stance on perps is cautious rather than hostile, with trading firms recognizing a product they understand, regulators seeing a market moving onshore, and exchanges eyeing an opportunity to capture new volume. Nonetheless, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.