Perpetual futures have been a staple of the crypto trading landscape, particularly among international investors. Now, with their introduction to regulated American markets, Wall Street is grappling with whether they represent a fleeting retail trend or a lasting challenge to traditional futures. The initial numbers are undeniable, with Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch in June, marking the company's largest product debut since prediction markets.
The exchange has since pursued regulatory approval to offer perpetual futures tied to gold and silver, signaling the product's potential expansion beyond bitcoin and other digital assets. Perpetual futures, or '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 maintain the contract's price alignment 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, with Coinbase also receiving clearance to list regulated perpetual futures in the U.S. However, within Wall Street, interest in perps does not necessarily translate to immediate adoption. While discussions about perps are becoming more frequent, largely due to U.S.
regulators allowing once offshore markets to move onshore, most major financial institutions are still in the process of studying these products rather than preparing for significant 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 on their own capital. In contrast, large banks face stricter capital requirements, client obligations, and reputational risks, making them more cautious.
The potential applications of perps extend beyond speculation, as they could help traders manage weekend risk by providing a liquid 24-hour market. This could enable firms to adjust positions in response to events and use weekend prices to estimate where traditional futures may reopen, making perps valuable for both hedging and price discovery. However, industry insiders note that demand must be present to justify committing capital, and the current issue is depth, with weekend liquidity remaining thin and collateral systems not always moving as quickly as the markets they support. A regulatory battle is also emerging, with questions about whether some perpetual contracts should be treated as futures or swaps, affecting margin rules and registration duties.
As exchanges push perps into traditional markets, these legal questions may become more significant. The debate is also taking on a competitive dimension, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and arguing for different regulation.
Similar disputes could arise as exchanges seek to expand perpetuals into equities and other asset classes. For now, Wall Street's stance is cautious, with trading firms recognizing a familiar product, regulators seeing a market moving onshore, and exchanges viewing an opportunity to capture new volume. However, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.