The popularity of perpetual futures in the crypto space has been undeniable, with investors outside the US driving their success. Now, as these contracts become available in regulated American markets, Wall Street is weighing their potential as a lasting presence or a fleeting retail trend. Notable figures have already emerged, 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 is now seeking regulatory approval to offer perpetual futures tied to gold and silver, indicating the product's potential expansion beyond digital assets like bitcoin.
Perpetual futures, or 'perps,' differ 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 keep the contract's price aligned with the underlying asset. This product has become integral to 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 for Kalshi to offer these contracts, and Coinbase's approval to list regulated perpetual futures in the US, interest in perps is growing within Wall Street. However, this interest does not translate to immediate adoption, particularly among large financial institutions, which are instead opting to study the products before any major launches. Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers, given their greater freedom to test new venues and accept operational risks.
The cautious approach of big banks can be attributed to stricter capital rules, client obligations, and reputational risks. The potential applications of perps extend beyond speculation, offering utility in managing weekend risk, where traditional futures markets are closed. A liquid 24-hour perpetual market could enable traders to adjust positions in real-time and use weekend prices to estimate the reopening prices of CME futures, making perps valuable for both hedging and price discovery.
Despite the demand, the depth of the market remains a challenge, with thin weekend liquidity and collateral systems that do not always keep pace with market movements. Regulatory debates are also emerging, with questions over whether perpetual contracts should be treated as futures or swaps, affecting margin rules and who can provide liquidity.
As exchanges push to expand perps into traditional markets, competitive disputes, such as CME's challenge to the CFTC's treatment of Kalshi's bitcoin perpetuals, may arise. For now, Wall Street's stance is one of caution, with trading firms, regulators, and exchanges each seeing opportunities but also recognizing the need for further development in rules, liquidity, and infrastructure before the largest banks commit to this $90 trillion trading phenomenon.