The perennially popular perpetual futures, a staple in the crypto trading world, are finally making their way to regulated American markets, prompting Wall Street to ponder whether they are a fleeting retail fad or a lasting challenge to traditional futures. The impressive early numbers are hard to disregard, with Kalshi's perpetual futures reaching a staggering $1 billion in trading volume within a week of launch in June, making it 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 that the product may transcend its current confines of bitcoin and other digital assets. Perpetual futures, also known as perps, are akin to standard futures contracts but lack an expiration date, eliminating the need for traders to close or roll over their positions into new contracts. Instead, periodic funding payments ensure the contract's price remains aligned with the underlying asset. This product has become an integral part of global crypto trading, with Bank of America estimating annual perpetual futures volume at approximately $90 trillion.
Following the Commodity Futures Trading Commission's (CFTC) approval of Kalshi to offer these contracts on May 29, Coinbase also received the green light to list regulated perpetual futures in the US. However, within Wall Street, interest in perps does not necessarily translate to immediate adoption. While discussions about perps are becoming more frequent, largely due to US regulators permitting offshore markets to relocate onshore, most large financial institutions are still in the process of studying these products rather than preparing for major 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.
In contrast, big banks face stricter capital rules, client obligations, and reputational risks, making them more cautious in their approach. The potential applications of perps extend beyond speculation, as they could help traders manage weekend risk. Traditional futures markets are closed for part of the weekend, leaving traders with options exposure on Friday forced to wait until Sunday night to hedge against sharp moves.
A liquid 24-hour perpetual market could mitigate this issue, allowing firms to adjust their positions as events unfold and use weekend prices to estimate where CME futures may reopen, making perps a valuable tool for both hedging and price discovery. According to industry insiders, the demand for perps must be substantial to justify the commitment of capital, but the current lack of depth in the market poses a significant challenge.
Despite the regulatory fight brewing over the classification of perpetual contracts as futures or swaps, which affects margin rules and registration duties, Wall Street's view on perps remains cautious rather than hostile. For now, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.