For years, perpetual futures have dominated the crypto trading scene, particularly among international investors. Now, with their introduction to regulated American markets, Wall Street is grappling with whether they represent a fleeting retail fad 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, making them 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, indicating the product's potential to expand beyond bitcoin and other digital assets. Perpetual futures, or 'perps,' are similar to standard futures contracts but lack an expiration date, 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 a cornerstone of 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) cleared Kalshi to offer these contracts, and Coinbase also received approval to list regulated perpetual futures in the US. However, within Wall Street, interest does not translate to immediate adoption.
Discussions about perps are becoming more frequent, partly due to US regulators allowing offshore markets to move onshore. Nonetheless, most large financial institutions are still assessing the products rather than preparing significant launches. The first movers are likely to be proprietary trading firms, market makers, and newer clearing firms.
Unlike large banks, prop shops trade with their own capital, giving 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 profit in a young market potentially not worth the cost of building compliance, clearing, and risk systems. The difference in approach matters because 'Wall Street' encompasses several 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, even though significant events like wars, elections, and policy decisions do not.
A liquid 24-hour perpetual market could enable firms to adjust positions as events unfold and use weekend prices to estimate where CME futures may reopen, making perps useful for both hedging and price discovery. An industry insider noted that 'the demand has to be there, or the capital won't be,' arguing that firms won't commit balance sheet until customer activity justifies it.
However, the issue of depth remains, as a contract may trade around the clock but institutions may struggle to move large positions without shifting the market. Weekend liquidity is thin, and collateral systems do not always move as quickly as the markets they support. A regulatory battle is also emerging, with a key question being whether some perpetual contracts should be treated as futures or swaps, affecting 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, arguing the contracts should be regulated differently. Similar disputes could emerge if exchanges seek to expand perpetuals into equities and other asset classes. An industry insider suggested that some opposition reflects incumbent exchanges protecting existing businesses as much as concerns about market structure. For now, Wall Street's view is cautious rather than hostile, with trading firms seeing a product they understand, regulators seeing a market moving onshore, and exchanges seeing a chance to capture new volume.
However, the largest banks are unlikely to lead, waiting for the rules, liquidity, and infrastructure to catch up.