For years, perpetual futures have been a staple of the crypto trading scene, particularly among investors outside the US. Now, with these contracts entering the regulated American market, Wall Street is grappling with whether they represent a fleeting retail fad or a lasting challenge to traditional futures. The initial numbers are undeniable.
Kalshi's perpetual futures achieved a staggering $1 billion in trading volume within a week of their launch in June, marking 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 not remain exclusive to bitcoin and other digital assets.
Perpetual futures, often referred to as 'perps,' resemble standard futures contracts but lack an expiration date. Traders are not required to close or roll over their positions into new contracts on a monthly or quarterly basis.
Instead, periodic funding payments help maintain the contract's price in close proximity to the underlying asset. This product has become an integral component of global crypto trading, with Bank of America estimating the annual perpetual futures volume to be 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.
People familiar with the discussions noted that perps are being mentioned more frequently, partly due to US regulators allowing markets that previously operated offshore to relocate onshore. Nevertheless, most large financial institutions are still assessing the products rather than preparing for major launches. The first movers are likely to be proprietary trading firms, market makers, and newer clearing firms. Unlike large banks, prop shops trade using their own capital, affording them greater freedom to test new venues, accept operational risk, and withdraw if the economics cease to be viable.
Big banks, on the other hand, face stricter capital rules, client obligations, and reputational risk. For them, the potential profit in a nascent market may not yet justify the cost of developing compliance, clearing, and risk systems around it. This distinction is significant because the term 'Wall Street' encompasses several groups moving at different speeds.
Individual traders and smaller firms often arrive first, followed by market makers once volume grows. Banks typically require years of data, clear regulatory treatment, and stable infrastructure before committing substantial sums.
Nonetheless, the potential use cases extend beyond speculation. Perps could help traders manage weekend risk, as traditional futures markets close for part of the weekend, despite the fact that significant events such as 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. Insiders noted that this could make perps useful as both a hedge and a source of price discovery. 'The demand has to be there, or the capital won't be,' one industry insider remarked, arguing that firms won't commit balance sheet until customer activity justifies it.
The problem lies in depth. A contract may trade around the clock, but that does not mean institutions can move large positions without impacting 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 noted that these legal questions may become more important as exchanges push perps into commodities, equities, and other traditional markets.
The debate is also becoming a competitive one, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals, arguing that the contracts should be regulated differently. Similar disputes could emerge if exchanges seek to expand perpetuals into equities and other asset classes.
'A lot of this stuff... is more commercial than people are going to admit to out loud,' another industry insider said, suggesting 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.
Trading firms see a product they understand, regulators see a market moving onshore, and exchanges see a chance to capture new volume. However, the largest banks are unlikely to lead the charge. They will wait for the rules, liquidity, and infrastructure to catch up.