Perpetual futures have long been a staple in the crypto trading world, particularly for investors outside the US. With their introduction to regulated American markets, Wall Street is now determining whether they are a fleeting retail trend 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 in June.
This milestone has prompted the exchange to seek regulatory approval for perpetual futures tied to gold and silver, indicating the product's potential to expand beyond bitcoin and other digital assets. Perpetual futures, also known as 'perps,' are similar to standard futures contracts but lack an expiration date, eliminating the need for traders to close or roll over positions.
Instead, periodic funding payments help maintain the contract's price close to 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) granted Kalshi permission 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. While discussions about perps are becoming more frequent, largely due to US regulators allowing offshore markets to move onshore, most major financial institutions are still assessing the products rather than preparing for significant launches.
The first movers are likely to be proprietary trading firms, market makers, and newer clearing firms, which have more freedom to test new venues and accept operational risks due to their ability to trade with their own capital. In contrast, large banks face stricter capital rules, client obligations, and reputational risks, making them more cautious.
The potential applications of perps 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. However, industry insiders emphasize that demand must be present to justify committing capital. The current challenge lies in depth, as while a contract may trade around the clock, institutions may struggle to move large positions without impacting the market, and weekend liquidity remains thin.
A regulatory battle is also emerging, with questions about whether some perpetual contracts should be treated as futures or swaps, affecting margin rules and registration duties. As exchanges push perps into traditional markets, these legal questions may become more critical. For now, Wall Street's approach is cautious, with trading firms understanding the product, regulators seeing a market moving onshore, and exchanges eyeing new volume opportunities. Nevertheless, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.