Perpetual futures have long been a staple in the crypto trading world, particularly among international investors. With their entry into the US regulated market, Wall Street is now grappling with whether they represent a fleeting retail fad or a lasting challenge to traditional futures.
Early indicators have been impossible to ignore, with Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch in June, marking 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, hinting that the product may extend beyond bitcoin and other digital assets. Perpetual futures, or 'perps,' are akin to standard futures contracts but lack an expiration date.
Traders are not required to close or roll over their positions monthly or quarterly; instead, periodic funding payments ensure the contract's price remains close to the underlying asset. This product has become integral to global crypto trading, with Bank of America estimating the annual volume of perpetual futures to be approximately $90 trillion. On May 29, the Commodity Futures Trading Commission (CFTC) cleared Kalshi to offer these contracts, and Coinbase also received approval to list regulated perpetual futures in the US. However, within Wall Street, interest does not translate to immediate adoption.
Discussions about perps are becoming more frequent, partly because US regulators are allowing offshore markets to transition onshore. Nevertheless, 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.
Unlike large banks, prop shops trade with their own capital, affording them the freedom to test new venues, accept operational risks, and withdraw if the economics cease to be favorable. Big banks face stricter capital rules, client obligations, and reputational risks. For them, the potential profit in a nascent market may not yet justify the cost of developing compliance, clearing, and risk systems.
This distinction is significant because 'Wall Street' encompasses several groups moving at different speeds. Individual traders and smaller firms often arrive first, followed by market makers once volume increases.
Banks typically require years of data, clear regulatory treatment, and stable infrastructure before committing substantial sums. The potential applications of perps extend beyond speculation; they could aid traders in managing weekend risk. Traditional futures markets are partially closed over the weekend, despite the fact that significant events such as wars, elections, and policy decisions do not pause. A trader holding options exposure on Friday may have to wait until Sunday night to hedge a sharp move.
A liquid 24-hour perpetual market could change this dynamic. Firms could adjust positions as events unfold and then use weekend prices to estimate where CME futures may reopen, making perps useful both as a hedge and a source of price discovery.
An industry insider noted, 'The demand has to be there, or the capital won't be,' arguing that firms won't commit to their balance sheet until customer activity justifies it. The challenge lies in depth.
A contract may trade around the clock, but that does not mean institutions can 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.
A regulatory battle is also taking shape, with a key question being whether some perpetual contracts should be treated as futures or swaps. This distinction affects margin rules, registration duties, and who can provide liquidity.
Industry insiders believe these legal questions may become more critical as exchanges push 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, arguing that these contracts should be regulated differently. Similar disputes could emerge if exchanges seek to expand perpetuals into equities and other asset classes. Another industry insider suggested that some opposition reflects incumbent exchanges protecting their existing businesses as much as concerns about market structure.
For now, Wall Street's stance is cautious rather than hostile. Trading firms see a product they understand, regulators see a market moving onshore, and exchanges see an opportunity to capture new volume. However, the largest banks are unlikely to lead the charge, instead waiting for the rules, liquidity, and infrastructure to mature.