For years, perpetual futures have been a staple in the crypto trading world, particularly among investors outside the US. Now, with their introduction into regulated American markets, Wall Street is grappling with whether they are a fleeting retail trend 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.
This prompted the exchange to seek regulatory approval for perpetual futures tied to gold and silver, indicating that the product may not be limited to 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.
As a result, perps have become a core component of global crypto trading, with Bank of America estimating their annual volume to be around $90 trillion. On May 29, the Commodity Futures Trading Commission (CFTC) granted Kalshi permission to offer these contracts, and Coinbase also received approval to list regulated perpetual futures in the US. However, within Wall Street, interest in perps does not necessarily translate to immediate adoption. While discussions about perps are becoming more frequent, particularly as US regulators allow offshore markets to move onshore, most large financial institutions are still assessing the products rather than preparing for 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 risks. In contrast, big banks face stricter capital rules, client obligations, and reputational risks, making them more cautious in their approach. The potential applications of perps extend beyond speculation, as they could help traders manage weekend risk. Traditional futures markets are closed during parts of the weekend, but perps could provide a liquid 24-hour market, allowing firms to adjust positions in response to events and use weekend prices to estimate where CME futures may reopen.
Insiders argue that perps could be useful for both hedging and price discovery. However, the demand for perps must be present to justify the commitment of capital. The main challenge 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, affecting margin rules and registration duties. The debate is becoming increasingly competitive, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and arguing for different regulation.
For now, Wall Street's view on perps is cautious rather than hostile, with trading firms seeing a familiar product, regulators viewing a market moving onshore, and exchanges seeing an opportunity to capture new volume. However, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.