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 weighing whether they represent a fleeting retail trend or a lasting challenge to traditional futures.
Notably, Kalshi's perpetual futures surpassed $1 billion in trading volume within a week of launching 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, as periodic funding payments help maintain the contract's price in line with the underlying asset. This product has become integral to 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 clearance to list regulated perpetual futures in the US. However, inside Wall Street, interest in perpetual futures does not necessarily translate to immediate adoption. While discussions about perps are becoming more frequent, partly due to US regulators allowing previously offshore markets to move onshore, most large financial institutions are still in the process of studying these products rather than preparing for major launches.
It is more likely that the first movers will be proprietary trading firms, market makers, and newer clearing firms. Unlike large banks, proprietary trading firms 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.
In contrast, big banks face stricter capital regulations, client obligations, and reputational risks, making them more cautious in their approach. The distinction in approach between these groups is significant, as 'Wall Street' encompasses several entities moving at different speeds. Individual traders and smaller firms often arrive first, followed by market makers once volume increases. Banks, however, typically require years of data, clear regulatory guidance, and stable infrastructure before committing substantial resources.
Beyond speculation, perpetual futures have the potential to serve as a tool for managing weekend risk, as traditional futures markets are closed for part of the weekend. 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, making perps useful for both hedging and price discovery. According to an industry insider, 'The demand has to be there, or the capital won't be,' suggesting that firms will only commit their balance sheets once customer activity justifies it. Nonetheless, the challenge lies in achieving depth, as a contract's ability to trade around the clock does not necessarily mean institutions can move large positions without 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, a distinction that affects margin rules, registration duties, and who can provide liquidity. Industry insiders believe these legal questions may become more pressing as exchanges expand perps into commodities, equities, and other traditional markets.
The debate is also taking on a competitive dimension, with CME challenging the CFTC's treatment of Kalshi's bitcoin perpetuals and arguing for different regulation. Similar disputes could arise if exchanges seek to expand perpetuals into equities and other asset classes. An industry insider noted, 'A lot of this stuff...
is more commercial than people are going to admit to out loud,' implying that some opposition stems from incumbent exchanges protecting their existing businesses as much as concerns about market structure. For now, Wall Street's stance is one of caution rather than hostility, with trading firms recognizing a product they understand, regulators seeing a market moving onshore, and exchanges eyeing an opportunity to capture new volume. However, the largest banks are unlikely to take the lead, instead waiting for the rules, liquidity, and infrastructure to mature.