For years, perpetual futures have been a staple in the crypto trading world, particularly among investors outside the US. Now, with their introduction to regulated American markets, Wall Street is grappling with whether they are a fleeting retail trend or a lasting threat 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 may 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 monthly or quarterly. Instead, periodic funding payments help maintain the contract's price in line 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) cleared Kalshi to offer the contracts, and Coinbase also received approval to list regulated perpetual futures in the US. However, within Wall Street, interest does not necessarily translate to immediate adoption. People familiar with discussions indicate that perps are being discussed more frequently, partly due to US regulators allowing offshore markets to move onshore.
Nevertheless, most large financial institutions are still studying the products rather than preparing major 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 risk. In contrast, big banks face stricter capital rules, client obligations, and reputational risk, making them more cautious in their approach.
The potential use cases for perps extend beyond speculation, as they could help traders manage weekend risk. Traditional futures markets close for part of the weekend, leaving traders vulnerable to unexpected events.
A liquid 24-hour perpetual market could provide a solution, allowing firms to adjust positions as events unfold and use weekend prices to estimate where CME futures may reopen. Insiders argue that perps could be useful as both a hedge and a source of price discovery. However, the demand must be present to justify the commitment of capital.
The main issue is depth, as a contract may trade around the clock, but institutions may struggle to move large positions without impacting the market. Weekend liquidity remains thin, and collateral systems do not always move as quickly as the markets they support. A regulatory battle is also emerging, with questions surrounding the treatment of perpetual contracts as futures or swaps, which affects margin rules, registration duties, and liquidity provision.
The debate is becoming increasingly competitive, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals. Similar disputes may arise if exchanges seek to expand perpetuals into equities and other asset classes.
For now, Wall Street's view is cautious rather than hostile, with trading firms seeing a product they understand, regulators viewing a market moving onshore, and exchanges seeing an opportunity to capture new volume. However, the largest banks are unlikely to lead the charge, instead waiting for the rules, liquidity, and infrastructure to catch up.