The popularity of perpetual futures in the crypto space has been undeniable, with these contracts soon to be introduced to regulated American markets. This development has prompted Wall Street to assess whether perpetual futures are a fleeting retail fad or a lasting challenge to traditional futures. Early indicators have been compelling, with Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch.
The exchange has since sought regulatory approval to expand its offerings to include gold and silver perpetual futures, hinting at the product's potential beyond digital assets. Perpetual futures, also known as 'perps,' are akin to standard futures contracts but lack an expiration date. This means traders are not required to close or roll over their positions monthly or quarterly; instead, periodic funding payments ensure the contract's price remains close to the underlying asset. Bank of America estimates that the annual volume of perpetual futures could be around $90 trillion, underscoring their significance in global crypto trading.
Following the Commodity Futures Trading Commission's (CFTC) approval for Kalshi and Coinbase to list regulated perpetual futures in the US, interest within Wall Street has grown, albeit with a cautious approach. Discussions about perps are becoming more common, partly due to US regulators allowing offshore markets to move onshore. However, large financial institutions are primarily studying these products rather than planning major launches. Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers, given their ability to test new venues and accept operational risks without the stringent capital rules and client obligations that big banks face.
The potential applications of perpetual futures extend beyond speculation, as they could help traders manage weekend risk by providing a liquid 24-hour market. This could enable firms to adjust positions as events unfold and use weekend prices to estimate where traditional futures may reopen, making perps useful for both hedging and price discovery. Industry insiders note that demand must be present to justify the commitment of capital, but the current issue lies in depth, with institutions facing challenges in moving large positions without significantly impacting the market. Regulatory debates are also emerging, particularly concerning whether perpetual contracts should be treated as futures or swaps, which affects margin rules and registration duties.
As exchanges aim to expand perpetuals into commodities, equities, and other traditional markets, these legal questions will become increasingly important. For now, Wall Street's stance is cautious, with trading firms, regulators, and exchanges each seeing opportunities, but the largest banks are likely to wait for clearer rules, better liquidity, and more developed infrastructure before making significant moves.