The highly anticipated perpetual futures contracts, a staple in the crypto trading world, are finally entering the US market, sparking a mix of excitement and trepidation among Wall Street institutions. With Kalshi's recent launch reaching $1 billion in trading volume within a week, the product's potential is undeniable. 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 keep the contract's price aligned with the underlying asset.
This product has become a cornerstone of global crypto trading, with Bank of America estimating an annual volume of approximately $90 trillion. Following the Commodity Futures Trading Commission's (CFTC) approval, Kalshi and Coinbase are now cleared to offer regulated perpetual futures in the US. However, large financial institutions are adopting a wait-and-see approach, preferring to study the product rather than rush into launches.
Proprietary trading firms, market makers, and newer clearing firms are likely to be the first movers, as they have more freedom to test new venues and accept operational risks. The potential use cases for perps extend beyond speculation, as they could help traders manage weekend risk and provide a source of price discovery.
A liquid 24-hour perpetual market could enable firms to adjust positions in real-time and use weekend prices to estimate where traditional futures may reopen. Nevertheless, the demand must be present to justify the commitment of capital, and the current lack of depth and regulatory clarity are significant hurdles. The distinction between futures and swaps will be crucial in determining margin rules, registration duties, and liquidity provision.
As the market evolves, a competitive debate is emerging, with incumbent exchanges potentially protecting their existing businesses. For now, Wall Street's stance is cautious, with trading firms, regulators, and exchanges watching the space closely, but the largest banks are unlikely to take the lead until the rules, liquidity, and infrastructure are more established.