The popularity of perpetual futures in the crypto space has been evident for years, 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 trend or a lasting threat to traditional futures. Notably, Kalshi's perpetual futures saw over $1 billion in trading volume within a week of 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 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. Traders are not required to close or roll over their positions into new contracts monthly or quarterly; 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 approval to offer these contracts, and Coinbase also received clearance to list regulated perpetual futures in the US. However, within Wall Street, interest in perpetual futures does not necessarily translate to immediate adoption. Discussions about perps are becoming more frequent, partly due to US regulators allowing markets that previously operated offshore to move onshore.
Nevertheless, most large financial institutions are still in the process of studying these products rather than preparing for major launches. Proprietary trading firms, market makers, and newer clearing firms are more likely to be the first movers. Unlike large banks, these entities trade with their own capital, affording them the freedom to test new venues, accept operational risks, and withdraw if the economics cease to be favorable. Big banks, on the other hand, face stricter capital rules, client obligations, and reputational risks, which may deter them from committing to a young market.
The potential applications of perpetual futures extend beyond speculation; they could help traders manage weekend risk. Traditional futures markets are closed for part of the weekend, despite the fact that significant events such as wars, elections, and policy decisions can occur during this time. A liquid 24-hour perpetual market could provide a solution, enabling firms to adjust their positions as events unfold and use weekend prices to estimate where CME futures may reopen. Insiders believe this could make perps useful for both hedging and price discovery.
However, for firms to commit capital, there must be sufficient demand. The challenge lies in depth; while a contract may trade around the clock, institutions may struggle to move large positions without significantly impacting the market. Weekend liquidity remains thin, and collateral systems do not always move as swiftly as the markets they support.
A regulatory battle is also emerging, with a key question being whether certain perpetual contracts should be treated as futures or swaps, affecting margin rules, registration duties, and who can provide liquidity. Industry insiders suggest these legal questions may become more pressing as exchanges expand 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 and arguing for different regulation. Similar disputes may arise if exchanges seek to expand perpetuals into equities and other asset classes.
For now, Wall Street's stance is cautious rather than hostile, with trading firms recognizing a product they understand, regulators seeing a market moving onshore, and exchanges viewing an opportunity to capture new volume. Nonetheless, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.