The US introduction of perpetual futures, a staple in the crypto trading world, has sparked a mix of excitement and trepidation on Wall Street. With annual trading volumes estimated at $90 trillion by Bank of America, this product has become a core component of global crypto trading. However, its arrival in the US has been met with a wait-and-see approach by large financial institutions.
Instead, proprietary trading firms, market makers, and newer clearing firms are likely to be the first movers in this space. Perpetual futures, also known as 'perps,' differ from traditional futures contracts in that they do not expire, eliminating the need for traders to close or roll over positions. This feature, combined with periodic funding payments, helps keep the contract's price aligned with the underlying asset.
The Commodity Futures Trading Commission (CFTC) has cleared Kalshi and Coinbase to offer regulated perpetual futures in the US, paving the way for the product's expansion into traditional markets such as commodities and equities. Despite the potential for perpetual futures to become a game-changer in managing weekend risk and providing a source of price discovery, the lack of depth in the market and regulatory uncertainty are significant hurdles. The distinction between futures and swaps, and the resulting margin rules and registration duties, is a key point of contention.
As the market continues to evolve, it is likely that the largest banks will wait for the rules, liquidity, and infrastructure to mature before making significant commitments to perpetual futures.