For years, perpetual futures have been a staple in the crypto trading world, particularly among investors outside the US. With their introduction into regulated American markets, Wall Street is now grappling with whether they represent a fleeting retail fad or a lasting challenge to traditional futures. Initial numbers have been impressive, with Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch in June.
The exchange has since sought regulatory approval to offer perpetual futures tied to gold and silver, indicating the product's potential expansion beyond bitcoin and other digital assets. Perpetual futures, also known as 'perps,' are similar to standard futures contracts but lack an expiration date. Traders are not required to close or roll over their positions into new contracts monthly or quarterly, as periodic funding payments help maintain the contract's price close to 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) gave Kalshi the green light to offer these 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. Discussions about perps are becoming more frequent, 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. Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers. Unlike large banks, prop shops trade with their own capital, affording them the freedom to test new venues, accept operational risk, and withdraw if the economics cease to work.
Big banks face stricter capital rules, client obligations, and reputational risk, making the potential profit in a young market not yet justify the cost of building compliance, clearing, and risk systems. The difference in approach matters because 'Wall Street' encompasses various groups moving at different speeds. Individual traders and smaller firms often arrive first, followed by market makers once volume grows, and banks typically require years of data, clear regulatory treatment, and stable infrastructure before committing large sums. 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, despite the fact that significant events like wars, elections, and policy decisions do not. A liquid 24-hour perpetual market could change this, allowing firms to adjust positions as events unfold and use weekend prices to estimate where CME futures may reopen. Insiders suggest that perps could be useful both as a hedge and a source of price discovery. However, the demand must be present for firms to commit their balance sheets, and customer activity must justify it.
The issue lies in depth, as a contract may trade around the clock but institutions may struggle to move large positions without affecting 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 taking shape, with a key question being whether some perpetual contracts should be treated as futures or swaps. This distinction affects margin rules, registration duties, and who can provide liquidity.
Industry insiders believe these legal questions may become more important as exchanges push perps into commodities, equities, and other traditional markets. The debate is also becoming competitive, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and arguing that the contracts should be regulated differently. Similar disputes could emerge 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, instead waiting for the rules, liquidity, and infrastructure to catch up.