The popularity of perpetual futures in the crypto space has been evident for years, particularly among international investors. Now, with their introduction to regulated American markets, Wall Street is grappling with the decision of whether these contracts are a fleeting retail trend or a lasting challenge to traditional futures.
Noteworthy trading volumes have been recorded, with Kalshi's perpetual futures surpassing $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 subsequently sought regulatory approval to offer perpetual futures tied to gold and silver, indicating the product's potential expansion beyond bitcoin and other digital assets. Perpetual futures, also known as perps, are distinct from standard futures contracts in that they do not expire, eliminating the need for traders to close or roll positions into new contracts.
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) clearance of Kalshi to offer these contracts on May 29, Coinbase also received approval to list regulated perpetual futures in the US. However, within Wall Street, interest in perps does not translate to immediate adoption.
Discussions about perps are becoming more frequent, partly due to US regulators allowing offshore markets to move onshore. Nonetheless, most large financial institutions are still assessing the products rather than preparing for major launches. Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers.
Unlike large banks, these firms trade with their own capital, affording them the freedom to test new venues, accept operational risks, and withdraw if the economics cease to be favorable. Big banks, on the other hand, face stricter capital rules, client obligations, and reputational risks, making the potential profit in a nascent market insufficient to justify the costs of building compliance, clearing, and risk systems. The potential applications of perps extend beyond speculation, as they could aid traders in managing weekend risk. Traditional futures markets are closed for part of the weekend, despite the fact that significant events such as wars, elections, and policy decisions can occur during this time.
A liquid 24-hour perpetual market could provide a solution, enabling firms to adjust positions as events unfold and utilize weekend prices to estimate where CME futures may reopen, thus making perps useful for both hedging and price discovery. An industry insider noted that demand must be present for capital to be committed, emphasizing that firms will not allocate balance sheet resources until customer activity justifies it. However, the challenge lies in depth, as a contract's ability to trade around the clock does not guarantee that institutions can move large positions without impacting the market. Weekend liquidity remains limited, and collateral systems do not always operate as quickly as the markets they support.
A regulatory battle is also emerging, with a key question being whether certain perpetual contracts should be treated as futures or swaps, a distinction that affects margin rules, registration duties, and who can provide liquidity. The debate is becoming increasingly competitive, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and arguing for different regulation.
Similar disputes may arise if exchanges seek to expand perpetuals into equities and other asset classes. For now, Wall Street's stance is cautious rather than hostile, with trading firms recognizing a product they understand, regulators seeing a market moving onshore, and exchanges viewing an opportunity to capture new volume. Nevertheless, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.