Perpetual futures, a staple in the crypto trading world, have officially arrived in the US, prompting Wall Street to weigh their potential as a lasting fixture or a fleeting retail fad. The impressive launch numbers are hard to ignore, with Kalshi's perpetual futures surpassing $1 billion in trading volume within a week and seeking regulatory approval for gold and silver contracts. Unlike traditional futures, perpetual futures, or 'perps,' do not expire, eliminating the need for traders to close or roll positions, instead relying on periodic funding payments to maintain the contract's price alignment with the underlying asset.
Estimated at around $90 trillion in annual volume by Bank of America, perpetual futures have become a cornerstone of global crypto trading. Following the Commodity Futures Trading Commission's (CFTC) clearance for Kalshi and Coinbase to list regulated perpetual futures in the US, interest within Wall Street is growing, albeit cautiously. Proprietary trading firms, market makers, and newer clearing firms are likely to be the first movers, given their ability to test new venues and accept operational risks.
In contrast, large financial institutions are adopting a more measured approach, studying the products rather than launching them, due to stricter capital rules, client obligations, and reputational risks. The potential applications of perpetual futures extend beyond speculation, offering tools for managing weekend risk and providing price discovery. However, the demand must be present to justify the commitment of capital, and the current lack of depth and regulatory clarity pose significant challenges.
A regulatory battle is emerging, with questions surrounding the classification of perpetual contracts as futures or swaps, affecting margin rules and registration duties. As exchanges push to expand perpetuals into traditional markets, competitive disputes, such as CME's challenge to the CFTC's treatment of Kalshi's bitcoin perpetuals, are likely to arise.
For now, Wall Street's stance is cautious, with trading firms, regulators, and exchanges recognizing the potential of perpetual futures, but the largest banks are expected to wait for further developments in rules, liquidity, and infrastructure before making significant moves.