Perpetual futures have long been a staple in the crypto trading world, particularly among international investors. As these contracts enter the regulated US market, Wall Street is grappling with whether they represent a fleeting retail fad 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 most successful product debut since prediction markets. The exchange has since sought regulatory approval to offer perpetual futures tied to gold and silver, indicating the product's potential to expand beyond bitcoin and other digital assets.
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 ensure the contract's price remains close to 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. Following the Commodity Futures Trading Commission's (CFTC) approval on May 29, Kalshi and Coinbase are now cleared to offer regulated perpetual futures in the US.
However, within Wall Street, interest does not necessarily translate to immediate adoption. While discussions about perps are becoming more frequent, largely due to US regulators allowing 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. In contrast, large banks face stricter capital rules, 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 real-time and use weekend prices to estimate where traditional futures may reopen.
Insiders argue that demand must be present for firms to commit capital, but the current challenge lies in depth, with institutions struggling to move large positions without impacting the market. Regulatory debates are also emerging, with questions surrounding the classification of perpetual contracts as futures or swaps, which affects margin rules and registration duties. As exchanges push to expand perps into traditional markets, these legal questions may become more pressing. For now, Wall Street's stance is one of caution rather than hostility, with trading firms, regulators, and exchanges all seeing opportunities in this emerging market.