For years, perpetual futures have been a staple of the crypto trading scene, particularly among international investors. Now, as these contracts enter the regulated US market, Wall Street is grappling with whether they represent a fleeting fad or a lasting disruption to traditional futures.
The initial numbers are certainly compelling, 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, hinting that the product may expand beyond bitcoin and other digital assets.
Perpetual futures, often referred to as 'perps,' resemble standard futures contracts but lack an expiration date. Traders are not required to close or roll over their positions, as periodic funding payments help maintain the contract's price in line 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. On May 29, the Commodity Futures Trading Commission (CFTC) granted Kalshi approval to offer these contracts, and Coinbase also received clearance to list regulated perpetual futures in the US.
However, within Wall Street, interest in perps does not necessarily translate to immediate adoption. People familiar with the discussions indicate that perps are being mentioned more frequently, partly due to US regulators allowing offshore markets to move onshore.
Nevertheless, 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.
Unlike large banks, these entities trade with their own capital, affording them the freedom to test new venues, accept operational risk, and withdraw if the economics become unfavorable. Big banks, on the other hand, face stricter capital rules, client obligations, and reputational risk, making them more cautious. The potential applications of perps extend beyond speculation, as they could help traders manage weekend risk. Traditional futures markets close over the weekend, even though significant events like 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 use weekend prices to estimate where CME futures may reopen. Insiders suggest that perps could serve as both a hedge and a source of price discovery. However, the demand must be present to justify the commitment of capital.
The issue lies in depth, as a contract may trade continuously, but institutions may struggle to move large positions without impacting the market. Weekend liquidity remains limited, and collateral systems do not always move as quickly as the markets they support. A regulatory battle is also emerging, with questions surrounding whether some perpetual contracts should be treated as futures or swaps, affecting margin rules, registration duties, and liquidity provision. Industry insiders believe these legal questions may gain importance as exchanges expand perps into commodities, equities, and other traditional markets.
The debate has become 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 perps into equities and other asset classes.
For now, Wall Street's stance is cautious rather than hostile, with trading firms recognizing a familiar product, regulators seeing a market move onshore, and exchanges eyeing an opportunity to capture new volume. Nonetheless, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.