The popularity of perpetual futures in the crypto space has been undeniable, with trading volumes reaching staggering heights. Now, as these contracts make their way into regulated American markets, Wall Street is grappling with the question of whether they are a fleeting trend or a lasting threat to traditional futures. Notable exchanges such as Kalshi have seen their perpetual futures exceed $1 billion in trading volume within a week of launch, prompting the company to seek regulatory approval for contracts tied to gold and silver.
This move suggests that the product's appeal may extend beyond digital assets like bitcoin. Perpetual futures, often referred to as 'perps,' differ from standard futures contracts in that they do not expire, eliminating the need for traders to close or roll positions into new contracts. Instead, periodic funding payments help maintain the contract's price in relation to the underlying asset.
The Commodity Futures Trading Commission (CFTC) has cleared the way for companies like Kalshi and Coinbase to offer regulated perpetual futures in the US. However, large financial institutions are adopting a more measured approach, choosing to study the products rather than launch them immediately.
Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers, as they 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 perpetual futures extend beyond speculation, as they could help traders manage weekend risk and provide a source of price discovery.
A liquid 24-hour perpetual market could enable firms to adjust positions in real-time and use weekend prices to estimate where traditional futures may reopen. However, the lack of depth in these markets remains a concern, with institutions hesitant to commit large positions without sufficient liquidity. Regulatory questions also loom, with debates surrounding the classification of perpetual contracts as either futures or swaps, and the implications for margin rules and registration duties.
As the market continues to evolve, it is likely that the largest banks will wait for clearer regulations, improved liquidity, and more developed infrastructure before making significant commitments.