The highly popular perpetual futures, a staple in the crypto trading world, especially outside the US, are now making their way into regulated American markets. This development has prompted Wall Street to reassess whether these contracts are a fleeting retail fad or a lasting threat to traditional futures.
Notable trading volumes have been recorded, 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 also sought regulatory approval to offer perpetual futures tied to gold and silver, indicating the product's potential expansion beyond bitcoin and other digital assets. Perpetual futures, or 'perps,' are distinct from standard futures contracts as they do not expire, eliminating the need for traders to close or roll positions into new contracts.
Instead, periodic funding payments maintain the contract's price in line with the underlying asset. This product has become integral to global crypto trading, with Bank of America estimating annual perpetual futures volume at approximately $90 trillion. Following the Commodity Futures Trading Commission's (CFTC) approval of Kalshi to offer these contracts, and Coinbase's subsequent approval to list regulated perpetual futures in the US, interest in perps is growing within Wall Street.
However, this interest does not translate to immediate adoption. Discussions within the industry suggest that while perps are being considered more frequently, partly due to US regulators allowing offshore markets to move onshore, most large financial institutions are still in the process of studying the products rather than preparing for major launches. Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers, as they have the freedom to test new venues and accept operational risks without the stringent capital rules and client obligations that big banks face. The potential applications of perps extend beyond speculation, as they could aid traders in managing weekend risk, given that traditional futures markets are closed during part of the weekend.
A liquid 24-hour perpetual market could enable firms to adjust positions in real-time and use weekend prices to estimate where CME futures may reopen, making perps valuable for both hedging and price discovery. Industry insiders emphasize that demand must be present to justify the commitment of capital, but the challenge lies in depth, with thin weekend liquidity and collateral systems that do not always move as quickly as the markets they support.
A regulatory battle is also emerging, with questions surrounding the treatment of perpetual contracts as futures or swaps, affecting margin rules and registration duties. This debate is becoming increasingly competitive, with incumbent exchanges potentially protecting their existing businesses. For now, Wall Street's stance is cautious, with trading firms, regulators, and exchanges viewing the product as an opportunity, but the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.