Perpetual futures have been a staple in the crypto trading world, particularly outside the U.S. As they enter the regulated American market, Wall Street is weighing whether they are a fleeting retail trend or a lasting threat to traditional futures.
The initial numbers have been striking, with Kalshi's perpetual futures reaching $1 billion in trading volume within a week of launch. This has prompted the exchange to seek regulatory approval for perpetual futures tied to gold and silver, indicating the product's potential to expand beyond 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 keep the contract's price aligned with the underlying asset. The product has become integral to global crypto trading, with Bank of America estimating its annual volume at approximately $90 trillion. Following the Commodity Futures Trading Commission's (CFTC) clearance of Kalshi to offer these contracts, and Coinbase's approval to list regulated perpetual futures in the U.S., interest in perps is growing.
However, large financial institutions are adopting a wait-and-see approach, studying the products rather than preparing for major launches. 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. 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 in response to events and use weekend prices to estimate where traditional futures may reopen.
Despite the demand, firms won't commit capital until customer activity justifies it, and the problem of depth persists, with institutions facing challenges in moving large positions without impacting the market. A regulatory battle is also emerging, with questions surrounding the classification of perpetual contracts as futures or swaps, affecting margin rules and registration duties.
The debate is becoming increasingly competitive, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals. For now, Wall Street's stance is cautious, with trading firms, regulators, and exchanges viewing perps as an opportunity, but the largest banks are unlikely to take the lead, waiting instead for the rules, liquidity, and infrastructure to mature.